Precious metals traders returned to gold and silver futures today as the metals showed an excellent response to changes in the Fed’s monetary policy aggressiveness, and market participants continue to respond to Chairman Jerome Powell’s speech at the Brookings Institution in Washington. Traders continue to focus on his comments to slow the pace of upcoming interest rate hikes.
“Thus, it makes sense that we would reduce the pace of our interest rate increases as we approach a level of self-restraint that would be sufficient to bring down inflation… The time for an adjustment to the pace of interest rate increases may come once we meet in December.”
As of 5:01 p.m. ET, the basis for the most active February 2023 Comex gold futures contract was pegged at $1,817.40, after accounting for today’s biggest one-day gain in two years of $57.50, or 3.27%. Although the gains in gold futures today were a combination of dollar weakness and buyers actively entering long positions, traders bidding on the precious yellow metal for the rally was the predominant and most prevalent reason for today’s gain of 3.27%.
Currently, the dollar is trading significantly lower currently down by 1.23 pips, or 1.17%. Given that gold gained 3.27%, the dollar’s weakness accounted for nearly a third of the gains in February gold futures contracts, which is very different from the spot markets.
Spot or physical gold gained $34.30 roughly 60% of the move seen in gold futures. The notable difference in spot gold versus futures gains was that traders buying physical gold accounted for only $12.70 of the day’s gain plus $34, with the remaining $21.60 directly attributable to dollar weakness. This is according to KGX (Kitco Gold Index).
Given that gold futures gained 3.27%, that percentage gain was overshadowed by silver’s notable gain of 5.46%. Currently, the most active silver contract in March 2023 increased by $1.19 and is stable at $22.97.
As I spoke yesterday, investors generally reacted, their prayers were answered, hearing the Fed is going to start slowing down the pace of rate hikes. However, they seem to be ignoring the fact that the Fed plans to continue raising interest rates throughout 2023 and possibly 2024. Chair Powell made this emphatically clear in his speech yesterday saying, “It is likely that restoring price stability will require policy holding at a constrained level for some time.” … History warns against a policy of premature easing. We will continue the course until the job is done.”
What is clear is that the rise in gold futures contracts from $1,621 to $1,817, which is a 10.78% increase since November 3 (less than one month) is a reflection of a significant change in market sentiment by investors. The assumption that sparked the rally that began on November 3rd was confirmed yesterday. The Fed will slow down the next rate hikes.
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