Traders Focus on the More Hawkish Components of Powell’s Comments

Fed Chairman Powell’s Remarks Impact Gold Markets

Chairman of the Federal Reserve Jerome Powell’s statements during two speeches this week covered the complexities of the thought process Fed members face with their monetary policy and the ramifications they present.

Powell said that he believes that for now, it isn’t “appropriate” to increase its benchmark rate. But also added that “We are not confident,” that the Fed’s benchmark rate is high enough to steadily reduce inflation to its 2% target. “If it becomes appropriate” to raise rates further, “we will not hesitate to do so.”

Market participants focused on the more hawkish alternative to his belief that it is not appropriate to increase rates right now. For the last five consecutive days, gold has traded with a lower daily high and lower daily low than the previous day. More so, four out of the five trading days this week we saw gold close below its opening price. The only day in which gold gained value on a closing basis was yesterday which resulted in a gain of $12, closing just $0.20 shy of $1970 per ounce.

Today selling pressure returned with a vengeance. As of 4:10 PM EST, gold futures basis most active December contract is down $29.30, which is a strong decline of 1.49%, and is currently fixed at $1940.40. Considering that on Monday gold opened a few dollars below $2000, gold has given up almost $60 in trading this week.

Obviously, trading capital by market participants was laser-focused on selling into gold’s recent gains, and on a short-term basis this makes sense. However, the quick switch in market sentiment regarding geopolitical tensions might be short-lived as the global landscape continues not only to simmer but could quickly approach a boiling point.

The war in Ukraine is still potently active, and the conflict between Israel and Hamas has turned into an all-out war.

Yesterday NATO Secretary-General Jens Stoltenberg said that the Russian President, Vladimir Putin, has made “the world more dangerous” by his decision to void an international nuclear agreement. These statements and actions were magnified with comments by Dmitry Medvedev, the vice-chairman of the Russian Security Council, this week suggesting that further NATO escalation could result in Russia’s use of nuclear, biological, and chemical warfare.

These actions suggest the geopolitical landscape continues to magnify, as conflicts spread throughout many parts of the world.

While traders’ capital was overwhelmingly selling into gold’s recent price move above $2000, market participants must see this as short-term market sentiment. This is because I fear long-term, the complexities of the geopolitical landscape continue to become more alarming.

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Wishing you as always good trading,

Gary S. Wagner