The anticipation of aggressive measures from the Federal Reserve to combat inflation sent shockwaves through the market, causing gold prices to plummet below the psychologically significant $2,000 threshold. Investors found themselves navigating a landscape rife with caution, triggered by the hawkish stance outlined in the minutes from the latest Federal Open Market Committee (FOMC) meeting. The Fed’s inclination toward sustained intervention against inflation prompted this hesitancy, despite gold receiving some buoyancy from a weakened dollar subsequent to its recent resurgence.
Key Highlights:
- Fed’s Hawkish Stand: Minutes from the Federal Reserve’s meeting hint at aggressive measures against inflation, impacting gold prices.
- Speculation on Interest Rates: Talks of potential rate cuts by May next year keep USD movements restrained.
- Mixed Signals for Gold: Technical indicators suggest caution as gold struggles around $2,000, facing critical support and resistance levels.
- Market Fluctuations: US housing market cools down, while geopolitical tensions in the Middle East remain subdued.
- Economic Indicators’ Contrasts: Conflicting signals emerge as consumer sentiment rises amidst inflation expectations, contrasting with concerns over slowing economic demand.
Summary: Gold plunged below $2,000 following the Federal Reserve’s hawkish stance against inflation, triggering market caution. Speculation on interest rate cuts influenced the USD’s movement despite its recovery. With gold navigating pivotal levels, the market witnessed fluctuations in the housing sector and subdued geopolitical tensions. Contrasting economic signals emerged, showcasing consumer sentiment growth amid inflation worries and apprehensions about economic demand slowing down.
Intriguingly, the FOMC minutes unveiled inklings of a potential halt in interest rate hikes, igniting speculation about forthcoming rate cuts as early as May of the following year. This speculative buzz tethered the movements of the USD, even though it had shown signs of recovery since its late August lows against major global currencies.
Although gold struggled yesterday to maintain its foothold above $2,000, technical indicators delivered a mixed bag of signals. While positive oscillators hinted at the potential for cautious optimism should gold breach immediate resistance levels, the current support was pegged between $1,991 and $1,992, with looming risks of further decline toward the weekly lows near $1,980. The Simple Moving Average (SMA) benchmarks ominously pointed toward critical zones in the vicinity of $1,950-1,951, signaling potential pivotal points for the precious metal’s trajectory.
In tandem with these market fluctuations, the US housing market experienced a dip, with October’s Existing Home Sales hitting a seasonal low at an annual rate just shy of four million units. Simultaneously, the geopolitical tensions in the Middle East remained relatively subdued post an accord on hostage/prisoner exchanges and temporary ceasefires. Notably, the US precision strikes on Iran-backed facilities in Iraq failed to significantly impact market sentiment or the perception of gold as a safe-haven asset.
Kitco : Gold is at an Inflection Point, unveiling the Macro. Predictions and Investment Trends.
The conversation between Michelle Makori and Tavi Costa from Crescat Capital revolves around the current state of the US economy and the prospective role of gold in investment portfolios. Costa contends that the economy is approaching a critical juncture, emphasizing indicators signaling a potential hard landing rather than a soft economic downturn predicted by entities like Goldman Sachs. Various metrics such as yield curve inversions, labor market trends, and S&P 500 earnings to support his assertion.
Costa highlights the significant macroeconomic imbalances, citing historical parallels to the 1970s era, marked by inflationary pressures, chronic debt issues, and overvaluation in equity markets. He draws attention to the noteworthy absence of gold in investment portfolios despite indicators favoring its inclusion. This neglect, particularly among financial advisors, underscores a possible shift in sentiment towards gold. Costa speculates on the cascading effect of even a marginal increase in gold allocation by financial advisors, positing it as a potential catalyst for increased demand and subsequent price appreciation.
The focus now shifts to forthcoming US economic data releases for additional insights into market trajectories. Key indicators, including Initial Weekly Jobless Claims and Durable Goods Orders, are awaited with anticipation. Additionally, the revised Michigan Consumer Sentiment Index will be scrutinized to gauge consumer confidence amid the persisting economic challenges.
Analyzing Wednesday’s market sentiment, a probability exceeding 50% of Federal Reserve rate cuts by May 2024 exerted influence on the USD’s dynamics. This occurred despite the Fed’s recent emphasis on maintaining higher rates or tightening further if inflation remains unchecked. The economic landscape presented a mosaic of contrasting signals: As Reuter reported yesterday, the University of Michigan’s consumer sentiment survey indicated a surge in inflation expectations, while unemployment claims hit a monthly low of 209K, indicating a tightening labor market. Conversely, concerns about slowing economic demand surfaced with a larger-than-anticipated decrease in durable goods orders.