Hurry Up and Wait

As they await this month’s FOMC meeting, which will begin tomorrow, the financial markets are in a virtual holding pattern. It is widely expected that the Federal Reserve will raise the interest rates as one of the outcomes of this meeting. This will be the first rate increase in four months, as well as the first rate hike of this year. Federal Reserve members are on record saying they would like to see a total of three rate hikes this year.

The CME’s Fed Funds April futures contract is trading .005 lower and is closing at 99.115. Per the FedWatch tool, there is a 95.2% probability that an interest rate hike of between 75 and 100 basis points will occur and a 4.8% chance that the rate hike will be between 50 and 75 basis points. In other words, market consensus and sentiment currently sees the likelihood of a rate hike this month at 100%.

With that in mind, for the most part market participants have decided to have a wait-and-see attitude as they park most their trading activities on the sidelines until the outcome of this month’s Fed meeting is known.

Major Traders Pulled Profits on Long Gold Positions

According to last Friday’s COT (Commitment of Traders) report, and as reported in Kitco News, “The disaggregated Commitments of Traders report for the week ending March 7 showed money managers reduced their speculative gross long positions in Comex gold futures by 16,160 contracts to 150,277. At the same time, short bets rose by 7,839 contracts to 60,030. Gold’s net length now stands at 90,247 contracts, down 21% from the previous week.”

This clearly shows that hedge funds took profits ahead of this week’s Federal Reserve meeting. “Weakening prices along with increasing certainties that the Fed will restart the tightening cycle in March convinced specs to aggressively cut long gold exposure and build new short positions,” said Bart Melek, head of commodity strategy at TD Securities.

Gold Remains Above $1200 Per Ounce

With all the selling pressure from gold traders and speculators last week, on a technical basis a case can be made for realistic support of the precious yellow metal at $1200. Based upon our current technical studies, we show that the first level of support in gold is at $1198-1194, with a major support level at 1178. Our studies also indicate that current resistance in gold is at 1211 and 1220 per ounce. We would expect gold prices to become range bound leading up to Wednesdays announcement by the Fed revealing the outcome of this month’s meeting.

Wishing you as always, good trading,