Gold has strong gains as mixed signals emerge about future rate hikes

Based on gold futures, the most active contract for December 2022 at 5:05 p.m. This strong gain was based on differences between the voting members of the Federal Reserve as they debate whether or not to reduce the size of the rate hike at the December FOMC meeting. Certainly, there is no unanimous consensus as to future actions regarding the pace and size at which the Federal Reserve continues to raise its fed funds rate.

According to CME’s FedWatch tool, there is a 96.5% chance that the Federal Reserve will raise its benchmark rate by another 75 basis points in November. The FedWatch tool derives its odds based on the prices of Fed Funds futures contracts and has had excellent results in previous predictions.

There has been a recent shift in the likely size of the December rate hike which has changed dramatically over the past week. This indicator currently predicts that there is a 51.9% chance that the Fed’s benchmark interest rate will be between 425 and 450 basis points, the probability yesterday was only 24.2%.

At the same time, the FedWatch tool believes that there is a 46.3% chance that the fed funds rate will be between 450 and 475 basis points by the end of 2022. This is very different from yesterday’s prediction, which indicated a probability of 75.4%. What caused the dramatic change in the prices of the fed funds futures contracts in the last 24 hours was renewed speculation among Federal Reserve officials about whether or not to begin tapering the size of the December rate hike. , as well as next year’s increases.

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First reported by the Wall Street Journal this morning, “Federal Reserve officials are racing toward another 0.75 percentage point interest rate hike at their November 1-2 meeting and are likely to debate whether point out plans to pass a minor increase and how to do it. in December.”

The article also addresses the fact that some officials have begun signaling their “desire both to slow the rate hikes soon and to stop raising rates early next year to see how their moves this year are slowing the economy.” . The concern among more dovish Fed officials is their desire to reduce the risk of creating an unnecessary sharp contraction in the economy. Those who oppose any change in its current aggressive pace of rate increases believe it is too early for these discussions because inflation is still entrenched and persistent.

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Fed Governor Christopher Waller said earlier this month: “We will have a very thoughtful discussion on the pace of tightening at our next meeting.” Which makes it an interesting fact that today’s Wall Street Journal article carried so much weight when it was common knowledge that a discussion about the pace of monetary tightening was taking place.

Throughout this week, analysts, myself included, have focused on recent statements by several Federal Reserve bank presidents indicating a desire to bring their benchmark interest rate to between 450 and 475 basis points sooner. to make any decision. This can only happen if they raise rates by 75 basis points at the next two FOMC meetings.

This is why today’s Wall Street Journal article titled “Fed Prepares to Hike Rates by 0.75 Points, Debate Size of Future Hikes” had the tremendous impact that it did. One possibility is that the Wall Street Journal also reported that “two Federal Reserve officials have begun making a case for caution in raising interest rates recently.”

Whatever the cause of this article being published today, it is an indisputable fact that this article was instrumental in driving gold and silver prices up dramatically. Additionally, it had a strong impact on US stocks with the Dow gaining 748.97 points or 2.47%, the S&P 500 gaining 2.28% and the NASDAQ Composite gaining 2.89%.

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Since raising the Federal Reserve’s fed funds rate requires a vote in which a majority of voting members vote in favor of the increase, market participants will be intensely focused on the November FOMC statement, as well as in Chairman Powell’s remarks at the post-conclusion press conference. of the November meeting.

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Wishing you as always good business and good health,

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has gone to great lengths to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange of commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage arising from the use of this publication.


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