The Federal Reserve’s Dovish Pivot Has Moved Gold $50 Higher in 2 Days

Federal Reserve’s Dovish Pivot: Unveiling the Shift in Monetary Policy Stance

A dovish pivot is the best way to describe yesterday’s Fed statement and Chairman Powell’s press conference from the last FOMC meeting of the year. Typically, when deciphering “Fed speak” investors look for nuances and word choices for insight into the internal thinking of Federal Reserve members’ comments. That was not needed in statements released by the Federal Reserve, as well as comments by Jerome Powell yesterday.

Just two weeks ago, on December 1 Powell addressed an audience at Spelman College in Atlanta. His tone and statements were hawkish about future rate cuts and a pivot in the Fed’s monetary policy. Market participants seemed overly optimistic about rate cuts next year, Powell pushback on expectations for aggressive interest rate cuts in 2024 saying, “It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease.”

He followed that tone as he stressed that the central bank plans on “keeping policy restrictive” adding, “We are prepared to tighten policy further if it becomes appropriate to do so.”

The chairman’s comments at yesterday’s press conference were remarkably different and did not require focusing on nuances and word choice with decisive statements that the Federal Reserve was addressing rate cuts next year. His comments defined an absolute pivot by the Federal Reserve from its restrictive monetary policy stance to a much more accommodative framework next year.

“Having come so far so quickly, the FOMC is moving forward carefully, as the risks of under- and over-tightening are becoming more balanced,”

“As the demand- and supply-related effects of the pandemic continue to unwind, uncertainty about the outlook for the economy is unusually elevated.”

Federal Reserve’s Pivot Sparks Surge in Gold and Silver

The dramatic pivot by the Federal Reserve resulted in strong gains in both gold and silver pricing. Gold futures opened at $1995 yesterday and as of 5:18 PM EST, the most active February 2024 contract is currently trading at $2051.30. Over the last two days of trading, gold has gained over 2 ½% with dollar weakness only partially responsible for the gains.

Silver futures have gained well over 6% with the most active March 2024 contract currently fixed at $24.38 ½. Silver futures opened at $23.075 gaining approximately $1.31 since yesterday’s open.

The dollar index has fallen substantially from its open yesterday of 103.83 to its current value of 101.96.

From these numbers above, we can certainly see that dollar weakness played a significant role in both gold and silver’s rise in the last two days, but it was market participants bidding both precious metals higher that is the key component of the dramatic rise investors have witnessed.

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Wishing you as always good trading,

Gary S. Wagner