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

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On a gold futures basis, the most active December 2022 contract as of 5:05 PM EDT is currently pegged at $1662.50 after accounting for today’s net gain of $25.70, or 1.57%. This strong win was based on differences among Federal Reserve members who voted at the FOMC meeting in December when they debated whether to reduce the size of the rate hike. There is absolutely no consensus on future action regarding the pace and extent of the Federal Reserve continuing to increase the Fed funds rate.

According to CME’s FedWatch tool, there is a 96.5% probability that the Federal Reserve will raise the benchmark rate by another 75 basis points in November. The FedWatch tool derives its probabilities based on Fed Funds futures contract pricing and has had excellent results in past forecasts.

A recent change in the likely size of the December rate hike changed dramatically last week. This indicator currently estimates a 51.9% probability of the Fed’s benchmark interest rate being between 425 and 450 basis points, compared to just 24.2% yesterday.

At the same time, the FedWatch tool believes there is a 46.3% probability that the Fed funds rate will be between 450 and 475 basis points by the end of 2022. This is drastically different from yesterday’s forecast, which puts a 75.4% probability. What has caused the dramatic shift in Fed Funds futures contract pricing over the past 24 hours has been new speculation among Federal Reserve officials about the size of the December rate hike and whether it will cut the rate hikes next year.

First reported by the Wall Street Journal this morning, “Federal Reserve officials are moving towards another 0.75 percentage point rate hike at their meeting November 1-2, and will then discuss whether and how to flag plans to approve a smaller hike in December. ”

The article also cites that some officials have begun to signal “desire both to slow the rate of growth recently and to halt rate hikes early next year to see how their moves this year slow the economy.” Concern among more dovish Federal Reserve officials is the desire to reduce the risk of causing an unnecessary sharp contraction in the economy. Those who oppose any change in the current rate of rate hike believe it is too early for these discussions as inflation is still extremely entrenched and persistent.

“We’re going to have a very thoughtful discussion about the pace of tightening at our next meeting,” Fed chairman Christopher Waller said earlier this month. And while it’s common knowledge that today’s Wall Street Journal article has had a discussion about the pace of monetary tightening, it’s an interesting fact that it gets so much weight.

Over the course of this week, analysts, including myself, have focused on recent statements by various heads of Federal Reserve banks, who expressed a desire to keep the benchmark rate between 450 and 475 basis points before making any decisions. This can only happen if they raise rates by 75 basis points at the next two FOMC meetings.

That’s why the Wall Street Journal article, “Fed Will Raise Rates by 0.75 Points and Discuss the Magnitude of Future Increases,” had such a tremendous impact, as it did. One possibility is that the Wall Street Journal also reports that “two Federal Reserve officials have recently started a case for caution in raising interest rates.”

Whatever caused this article to be published today, it is an indisputable fact that it was instrumental in raising both gold and silver prices significantly. Also, the Dow gained 748.97 points, or 2.47%, the S&P 500 2.28% and the NASDAQ composite 2.89%, making a strong impact on US stocks.

Because raising the Federal Reserve’s Fed funds rate requires a vote in which a majority of voting members decide in favor of the raise, market participants will focus carefully on November’s FOMC statement and President Powell’s press conference following the outcome. From the November meeting.

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I wish you good trading and health as always,

Disclaimer: The views expressed in this article are those of the author and may not necessarily reflect those of the author. Kitco Metal A.S. The author has made every effort to ensure the accuracy of the information provided; but neither Kitco Metals Inc. nor can the author guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation for any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article assumes no liability for loss and/or damage resulting from the use of this publication.