Gold and silver prices continue to decline as the possibility of rate hikes next year increases

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Both gold and silver prices continue to decline as market sentiment is pricing in the real potential that interest rate normalization will begin as early as next year, and at a much quicker pace than anticipated. Yesterday’s reappointment by President Biden of Chairman Powell to a second term has raised concern about the steps the Federal Reserve will take to curtail rising inflationary pressures.

Tomorrow the government will release the most current PCE inflationary index data for October. Since this is the preferred index of the Federal Reserve any major uptick in inflationary pressures vis-à-vis the PCE could accelerate the timeline to lift-off or interest rate hikes. Since the Federal Reserve will not begin to raise rates before they complete the tapering process it has become more likely that they will accelerate the timeline of tapering so that it is completed in April 2022 rather than June.

However, this presents a whole new set of issues because the underlying cause of this recession is still festering with the United States seeing a resurgence of new daily infections of almost 100,000 new Covid cases reported daily.

How can the Federal Reserve begin to normalize interest rates and accelerate the tapering process as the economy in the United States has not fully recovered, and the underlying causes of the current recession continue to be present? Without having a solid economic recovery in place. The challenges that the Federal Reserve will face in 2022 are unprecedented. Raising rates before the United States economy begins to normalize, could deepen the recession before it has had the time needed to adequately recover.

As of 5:00 PM EST gold futures basis, the most active December contract is down $16.80, or 0.93%, and fixed at $1789.50. Silver is at a much steeper decline of roughly 2 ½%, with the most active December contract currently fixed at $23.655.

It is our current belief that at some point both gold and silver will find support and once again move to higher pricing. Therefore, the real question is what price points to look for both precious metals find support, and what fundamental events are needed to precipitate rallies in the precious metals.

Unquestionably the most important fundamental events over the next couple of weeks will be the release of the PCE inflationary index numbers for October, followed by the FOMC meeting scheduled to begin on December 14. The PCE inflationary index numbers for October gold give us insight as to how the Federal Reserve responds to the current inflationary pressures.

Today’s video report will attempt to look at possible scenarios that could occur.

Wishing you, as always, good trading and good health,

Gary S. Wagner - Executive Producer