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The hawkish Pause by the Fed erased all of the gains for gold since September 14

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Never assume one has a good read on upcoming decisions by the Federal Reserve regarding changes to their monetary policy. While it was correctly assumed that the Fed would pause rate hikes at Wednesday’s FOMC meeting, the updated dot plot was like a curveball that few if any were able to anticipate. The CME’s FedWatch tool predicted a 99% probability that the Fed would not raise rates this month. However, regarding rate cuts, they revised the number of rate cuts next year from four to two.

This unseen revision to the Federal Reserve’s monetary policy sent shockwaves through the financial markets at large. The takeaway from the reduction in future rate cuts was that Federal Reserve members are committed to tackling the high levels of inflation. The new projections indicate that the Fed intends to keep its terminal rate above 5% throughout the entire calendar year of 2024.

Gold had been gaining value for the previous five consecutive trading days to Wednesday’s FOMC conclusion. Gold futures hit the lowest value since August 23 after trading to an intraday low of $1921 on Thursday, September 14. Gold would gain substantial value from the low achieved on September 14 to a high of $1967 after the FOMC meeting concluded and the release of their monetary policy statement.

The value that gold traded to on Wednesday quickly eroded once Chairman Powell began his opening remarks at the press conference, he holds after every FOMC meeting. Within minutes gold prices began to erode which resulted in a $27 decline by the close of trading the following day. Yesterday gold futures sank to a low of $1933 before recovering and closing at $1939.

When you look at a weekly Japanese candlestick chart of gold futures this week resulted in the formation of a candlestick type called a “doji.” A doji candle is formed when the open and closing values of a stock or commodity are unchanged or a few ticks apart. The definition of “doji” comes from the Japanese phrase meaning “the same thing.” First and foremost, this candlestick type indicates that neither the bullish nor bearish faction has absolute control.  Depending on where this candlestick type occurs it can indicate a market consolidation or if found after a strong rally or correction the potential for a pivot from bullish to bearish, or bearish to bullish. This week’s doji candlestick did not meet that criterion so it is most likely an indication of consolidation.

As of 5:34 PM EDT, gold futures basis the most active December contract has gained back six dollars of yesterday’s price decline and is currently fixed at $1945.60 almost the identical price that gold opened at on Monday.

The direction of gold next week will be highly influenced by pending legislation by Congress to fund the government which will run out of funds on Friday, September 30. If it seems as though there is a high probability that congressional legislators are unable to agree on a budget, that will create a solid bullish undertone for gold pricing. If they can come to an agreement and pass legislation before the deadline, we could see gold continue to trade lower.

Wishing you as always good trading,

Gary S. Wagner - Executive Producer