Events this week added dramatic volatility impacting gold prices

Two major events this week resulted in a roller-coaster ride for gold investors and traders.

As of 5:01 PM EST gold futures basis of the most active February 2023 Comex contract is fixed at $1803.40, after factoring in a gain of $15.60 or 0.88%. Today’s gains were accomplished despite current dollar strength. The dollar gained 0.16% with the dollar index currently fixed at 104.70. This means that all of today’s price advance is directly attributed to market participants actively buying the precious yellow metal.

However, after all of the wild daily swings, gold futures will finish the week with a fractional decline of about $4.

On Tuesday the U.S. Bureau of Labor Statistics released the CPI index report for November. The report showed that inflation remains elevated above 7%, but has declined substantially, coming in at 7.1% year-over-year in November. The report resulted in the largest daily price advance of $32 this week.

Central banks were extremely active this week with the Federal Reserve, European Central Bank, and the Bank of England all raising their benchmark rates by ½%. However, it was the hawkish statements by Chairman Powell which reinforced that rates will move higher in 2023 and remain at those elevated levels for the entire year.

Yesterday a delayed reaction by market participants to Wednesday’s FOMC statement and latest “dot plot” resulted in the largest daily price decline this week of $30.00.

Inflation expectations

Although Tuesday’s CPI report revealed that inflation for November declined substantially it is still running almost 3 times the pace that occurred before the pandemic and recession. Also, Jerome Powell indicated that the Federal Reserve is committed to maintaining interest rates highly elevated through 2023 and the first half of 2024.

Powell also acknowledged that the Fed’s monetary policy next year will most likely lead to a recession. The question becomes what the costs of the recessionary pressures will be. In other words, it is not whether or not the United States will enter another recession, but how deep that recession will be.

Wishing you as always good trading,