Precious metals traders flocked back to gold and silver futures today as the metals showed a tremendous reaction to changes in the aggressiveness of the Fed’s monetary policy. Market participants continue to react to Chairman Jerome Powell’s speech at the Brookings Institution in Washington. Traders continue to focus on his comments to slow the pace of rate hikes ahead.
“It therefore makes sense to moderate the pace of our rate hikes as we approach the level of restraint that will be sufficient to reduce inflation…
As of 5:01 PM EST, the gold futures base of the most active February 2023 Comex contract is set at $1817.40 after factoring in today’s biggest one-day gain in two years of $57.50 or 3.27 %. While gold futures gains today were a combination of dollar weakness and buyers actively taking long positions, traders bidding higher on the precious yellow metal was the overwhelming and predominant reason for today’s gains of 3.27%.
Currently, the dollar is trading dramatically lower, currently down 1.23 points or 1.17%. Given that gold gained 3.27% dollar, weakness accounted for about a third of the gains in gold’s February futures contract, very different from spot markets.
Spot or physical gold gained $34.30, about 60% of the movement seen in gold futures. The noticeable difference in spot gold versus futures gains was that traders buying physical gold accounted for just $12.70 of the current $34 plus profit, while the remaining $21.60 was directly attributable to dollar weakness. This is evident from the KGX (Kitco Gold Index).
Given that gold futures gained 3.27%, that percentage was dwarfed when compared to silver’s remarkable gain of 5.46%. Currently, the most active March 2023 silver contract is up $1.19 and set at $22.97.
As I discussed yesterday, the reaction of investors in general, their prayers were answered, when I heard that the Fed is going to start slowing the pace of rate hikes. However, they seem to ignore the fact that the Federal Reserve plans to continue raising interest rates in 2023 and possibly 2024. President Powell made this emphatically clear in his speech yesterday, saying: “It is likely that restoring price stability will require maintaining policies at a restrictive level for some time… History strongly warns against premature easing of policies. We will stay on track until the job is done.”
What is clear is that the rally in gold futures from $1621 to $1817, a 10.78% gain since Nov. 3 (less than a month), reflects a major change in market sentiment by investors. The assumption underlying the rally that started on November 3 was confirmed yesterday; the Fed will slow the pace of rate hikes ahead.
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I wish you good trading as always,
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