This Is What It Sounds Like When Doves Cry

Traders and investors witnessed extreme volatility characterized by strong price swings taking gold prices both moderately higher as well as moderately lower in trading today.

In a time span of only 70 minutes, gold prices fluctuated between a seven-dollar net gain followed by a six-dollar decline in prices.

As of 3:30 PM Eastern standard time, April Comex gold futures are currently trading down $5.70 at $1,325.50. Spot gold is currently trading at $1,322.60 which is a net decline of $6.10 on the day. On closer inspection, today’s lower pricing is almost entirely attributable to dollar strength. According to the Kitco Gold Index, $5.45 of today’s decline is a direct result of dollar strength with the remaining $0.65 due to light selling.

It was swings in the dollar index that caused gold’s volatility this morning. These extreme swings were in response to the release of January’s FOMC meeting minutes.

At 2:00 PM Eastern standard time, the Federal Reserve released the minutes of the January 30 - 31 Federal Open Market Committee Meeting minutes. The minutes clearly indicated a more dovish demeanor by Federal Reserve members.

“Almost all participants continued to anticipate that inflation would move up to the...2 percent objective over the medium term as economic growth remained above trend and the labor market stayed strong.”  Reuters news service reported, “In the previous set of minutes, fewer policymakers had expressed such confidence.”

The increased belief that inflation will continue to grow reinforces and strengthens the sentiment that the Federal Reserve will implement an interest rate hike next month. According to the Fed minutes “Members agreed that the strengthening in the near-term economic outlook increased the likelihood that a gradual upward trajectory of the federal funds rate would be appropriate.”

The overall demeanor of the minutes released today indicate that FOMC members have, in fact, revised their economic projections upwards when compared to their sentiment in December.

One explanation for today’s price gyrations in both the U.S. dollar and gold is that the initial read of the minutes suggested a more dovish stance by Fed members, On closer inspection, it was determined that the strong economic outlook did not affect the current target for interest rate hikes this year.

Wishing you as always, good trading,