What Might The Fed Do?

Monthly Market Preview: Will September See Gold Move After The Fed Meets?

The gold market has been relatively quiet in recent months. Moving primarily sideways, gold prices have oscillated between $1,700 and $1,800 for weeks now. That trend may change this month, however, as the next FOMC meeting is set to take place later in the month.

What Might The Fed Do?

The Fed and questions about what it may or may not do have been a central catalyst for market price action in recent months. For a time, many seemed to believe the Fed could start to pivot away from its battle against inflation. While this did not necessarily mean the Fed would begin to loosen policy again, it did mean that the Fed may hike rates far less aggressively or even take a pause from rate hikes altogether.

Recent commentary from Fed Chief Jerome Powell seems to suggest otherwise. Powell recently gave a speech at the conclusion of the Fed Symposium in Jackson Hole, Wyoming. He suggested the Fed would stay in the fight against inflation and that it viewed inflation as the greatest risk to the economy.

If the Fed is determined to bet inflation to its desired level of 2% annually, how will it get there? Recent aggressive hikes from the Fed have slowed the economy but thus far have not shown to be very effective against price pressures. The Fed is extremely unlikely to take rates where they may need to go to slow inflation (20% or so?) so how does it plan on accomplishing its goal?

Key Questions That Need Answering

That is the question that will need an answer in the months ahead. Some data have recently shown that inflation could potentially have already peaked. If that trend continues, the Fed may find itself in good shape. If, on the other hand, the data stream shows inflation remaining near a 40-year high, the Fed could be in trouble.

Markets are currently betting on a large rate hike this month. The odds are pretty evenly split between a 50-point hike and a 75-point hike. If the Fed hikes less than 50-points, it could send a dovish message to the markets. if the Fed hikes more than 75-points, it could send a hawkish tone through markets.

How Will The Fed Proceed?

Once this month’s FOMC meeting is over and done with, the Fed will have to figure out how it wants to proceed going forward. There is currently little to no reason for the Fed to stop hiking or reverse course and begin easing. Markets have tolerated higher rates so far, although the market’s tolerance of higher rates could start to wear thin in the coming months.

 

Source: Bloomberg.com

That is what could be the true test for the Fed and its inflation battle. How might the Fed handle markets moving significantly lower? If markets were to really crater, surely there would be increasing pressure on the central bank to halt its rate hikes or even start undoing them. If the Fed elects to stand fast at that point, it will preserve what little credibility it may have left.

If the Fed elects to give into that pressure, however, it may not only ruin its reputation but may also put the economy into an extended period of stagflation. The Fed has backed itself into a corner and now will have to follow through to avoid problems that are even worse.

Volatility May Remain

Whatever the Fed does or does not do, markets may remain jittery for some time. The word “recession” has already been tossed around quite a bit, and if the Fed keeps tightening that term will likely become increasingly popular. The U.S. could even be in a recession already. Whether it is or not, tough times may be ahead for the U.S. and global economies.

That makes right now the ideal time to explore your options for gold ownership.

Bears In Control

Weekly Market Preview: Bears Trying To Take Control

The gold market is seeing some selling pressure Tuesday as the new trading week gets underway. Investors are returning from the long Labor Day Weekend, and trading volumes should begin to return as well now that investors have completed last-minute vacations before the start of school.

Bears In Control

The bears appear to be in control of the market at this point. As they posh spot prices towards the $1,700 level, a major technical test could be seen today or sometime this week. If unable to hold the $1,700 level, the market could see selling pressure intensify.

Among other bearish factors the metal has working against it currently, the dollar is showing strength on this busy economic data release day. The dollar hit a fresh 20-year high today on a slumping euro. The euro currency is being hit today as Russia stated it would not reopen a gas pipeline into the region.

Energy Markets

The energy markets are a factor for gold today and may continue to be so in the months ahead. OPEC has decided to cut production by 100,000 barrels per day starting in October to give prices a boost. Even after its recent decline, the oil market is still elevated, trading near $90 per barrel currently.

 

Source:premiumtimesng.com

Higher crude oil prices could come at a bad time. Inflation remains near 40-year highs already. A sharp rise in the price of crude could cripple consumer spending and could make a recession a reality in a short period of time. Oil may not only exert its own influence but may also influence the prices of other commodities as well, making the inflation problem even more challenging.
Speaking of inflation, the Fed will be meeting again later this month to decide if rates will be raised again. The notion of the Fed pivoting away from its inflation battle may now be gone, and the Fed may be likely to continue with its aggressive rate hikes for the rest of the year if not longer.

Markets May Come Under Pressure

Should the Fed continue on its aggressive hiking path, stocks and risk assets could come under serious pressure. The stock market has been strong in recent weeks. That strength is nothing unusual in a bear market, however, and could very easily be quickly dissipated. The market could then go on to make new lows, and many investors could be left looking for places to put capital to work.
Gold could potentially see much of that capital leaving equities and coming into the metal. Gold could have some serious roadblocks as well, however, including the need for investors to sell and meet margin calls, and a general sense of risk aversion.

Gold May Wait Until Next Fed Meeting

The gold market may not do much until the next Fed meeting later this month. Markets are likely looking for further clues about the Fed’s outlook and its plans regarding interest rates and policy. Markets are now pricing in near-even odds of a 50 or 75-basis point hike this month. If the Fed hikes more or less than that, it could be market-moving and fuel some volatility.

Until the next Fed meeting, the market will take its cues from the data stream and chart-based trading. The bears currently have the edge and are pushing for a test of the $1,700 level. This area was breached on the downside last week. The bulls made a quick turnaround, however, and rapidly took prices higher again to provide some breathing room.

The bulls have thus far done a good job of absorbing the selling pressure within the market. Whether that can be maintained if the market pushes lower is unclear. A steep decline below $1,700 could set the stage for a fresh leg lower in value and for more bulls to throw in the towel.

With the long-term narrative remaining highly bullish, however, a downturn in gold could prove to be short-lived.

Non-Farm Payrolls Data

Weekly Market Review: Gold Seeing A Bounce On Jobs Data

The gold market is seeing a bit of a rally Friday to end the trading week. The yellow metal will still end the week on a sour note, however, as the bulls have been unable to hold prices at or above the $1750 level. After dipping below $1700 on Thursday, the bulls are back in action today, sending prices higher and trying to distance the market from the $1700 level. 

Bearish Issues

The market has been under pressure most of the week as numerous bearish issues took hold. A stronger dollar, rising bond yields and more all pressured the gold market this week and may continue to do so if present trends continue. The threat of a higher dollar may keep the gold bulls subdued for the months ahead until more clarity is seen surrounding the Fed and its plans for interest rates. 

Non-Farm Payrolls Data

Although the headline number of jobs created today was a positive (315,000) compared to consensus estimates of 295,000 jobs, the data was not all roses and candy. Both June and July data were revised lower, with June seeing a sharp revision lower of over 100,000 jobs. In what may be a positive for gold, wages did not increase as much as expected. 

Source: yahoo.com

 

Average hourly wages increased by .3% while estimates were looking for a rise of .4%. The lower-than-expected wage increase could be another sign that inflation has in fact peaked already and could continue to lose steam in the months ahead. The notion of easing inflation pressures may seem bearish for gold, but given the Fed and its plans for aggressive rate hiking, it could keep the central bank from raising rates much further and that may be bullish for gold. 

Fed Funds Reaction

Within hours of the non-farm payrolls release, the data had not been much of a factor in Fed Funds bets. Markets are still seeing a 75% chance the Fed will raise rates by another 75-basis points later this month. Although that could change, Jerome Powell appears to have gotten his message across that the Fed means business and will battle inflation until no longer necessary. 

If the Fed does stay the course, stocks and risk assets may roll over again and probe new lows. If the Fed elects to take a pause from hiking rates, however, or even decides to start easing, markets may find a sense of comfort that could allow stocks, risk assets and gold to all move higher. 

Major Capitulation Coming?

As the gold market approaches the $1700 level, the chances of a major capitulation sell-off increase. Gold’s multi-decade uptrend comes in around the $1675 area, and if broken could send the market sharply and rapidly lower. The bulls will put up a fight, but it is unclear if they will have the necessary ammunition to prevent a further sell-off in the market. 

The technical outlook for gold has not changed. The $1700 and $1800 levels remain the key areas for the bulls and bears to conquer. Until one side is breached on a closing basis, the market could remain choppy and sideways for some time. Thursday saw prices dip below the $1700 level but they have quickly come back today and are trying to put some distance between them and that level. 

The yellow metal may not do much until the next FOMC meeting this month. Once the Fed meets and decides how much they want to raise interest rates, gold could see more inflows. Until that time, however, the market may remain jittery and even embark on one or more unsustainable moves higher or lower. This may be referred to as market noise, as the long-term prospects for gold remain solidly higher.