Chairman of the Federal Reserve Jerome Powell signals a time to pause

In the mid-1990s as a young technical market analyst I was invited to speak at the Dow Jones Financial Symposium, a three-month lecture tour of which I attended one full month speaking at eight cities. Many of the top technical analysts were also speakers with long histories as technical analysts. However, although I was still green because my focus of studies involved understanding Japanese candlesticks and the patterns a formed I was welcomed into the seasoned group of market technicians. There I met Larry Williams for the first time.

One day over lunch Larry Williams asked me if I understood the difference between a technical analyst and a fundamental analyst. Without waiting for any input, he said that we as technical analysts are like passengers on a ship standing at the back of a boat, looking at the waves formed by the propeller of the ship and attempting to judge the direction the ship is headed by the observation from the propellers wake.

He said that the shortcoming of this type of observation to project the future direction of the boat will work to some degree, but only the captain knows when he will turn the wheel.

Today the captain of the Federal Reserve, Chairman Jerome Powell alluded to the fact that he is about to turn the wheel and implement the first rate hike pause since it began raising rates in March 2022. Speaking at a Fed Conference in Washington D.C. Chairman Powell said that the central bank's terminal rate (fed funds) is now elevated to the point where its effect on consumers and business loans is high enough to restrain borrowing, spending, and contract economic growth.

“Having come this far, we can afford to look at the data and the evolving outlook and make careful assessments,”

With inflation at just over 8% and interest rates at near zero in March of last year the Federal Reserve implemented its first interest rate hike of ¼%. This would be the beginning of 10 consecutive ones at each FOMC meeting which took the feds benchmark rate to between 5% and 5 ¼% at the May FOMC meeting.

This comes during the week in which multiple officials of the Federal Reserve suggested the opposite and alluded to the possibility of another rate hike at the June FOMC meeting. However, the change in market sentiment as gauged by the CME’s FedWatch tool changed significantly predicting a 64.4% probability that the Federal Reserve would pause rate hikes in June yesterday and an 81.4% probability that the Federal Reserve will begin to pause rate hikes next month

Powell’s speech today clarified the upcoming intention of the Federal Reserve’s monetary policy and as such created an extremely bullish undertone for gold pricing. Gold futures had been losing significant value and over the last three trading days had traded from $2020 on May 4 closing at $1959 yesterday.

As of 5:55 PM EDT Gold futures basis the most active June contract is currently fixed at $1979.90 After factoring in today’s gain of $20.10 Or 1.03%.

Wishing you as always good trading,