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Powell’s speech creates persistent pessimism in equities and precious metals

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Gold prices continue to trade under pressure resulting in another double-digit price decline today. As of 5:23 PM EDT gold futures basis, the most active December 2022 Comex contract is trading down by $13.60 or 0.78% and currently fixed at $1722.70. Just as in yesterday’s trading activity current pricing is just above the daily low of $1720.60. That being said, gold continues to trade to a lower low for three out of the last four trading sessions.

Powell’s Keynote speech last week has had a persistent influence which continues to drive U.S. equities and precious metals to lower pricing. His message was resolute and clear re-affirming that the Federal Reserve is intent on moving inflation lower at any cost.

According to the EveningBriefing by Bloomberg Chairman Powell has abandoned his notion that a soft landing is possible and is now aiming for something that will potentially result in much more pain for American corporations and individuals. However, many analysts are convinced that the hawkish monetary policy of the Federal Reserve will not be enough to achieve its intended goal.

According to Natasha Solo-Lyons who penned this EveningBriefing says that analysts have put a name to this economic scenario using the paradoxical name of a “growth recession”. It differs from a soft landing in that it is defined as a protracted period of meager growth and rising unemployment. It differs in that it stops short of an outright recession.

The belief that Chairman Powell is attempting to decrease inflation with a “growth recession” to avoid an outright recession is analogous to cutting a painting to fit a frame. The simple truth is that a recession is most likely unavoidable and it is a question of how deep the recession will be and how much pain it will inflict on corporations and Americans in 2023.

To achieve the target inflation level of 2% when the most current data vis-à-vis the PCE is above 6% is an unrealistic pipedream without raising interest rates to match the current rate of inflation or incrementally moving rates higher with the understanding that it will be a multiyear process to tackle inflation.

A historical perspective of how different Federal Reserve Chairmans faced the task of bringing inflation to an acceptable target level shows that it has never been accomplished without raising interest rates to match the current level of inflation.

Wishing you as always good trading and good health,

Gary S. Wagner - Executive Producer