Market forces fight to control gold prices, inflation, and higher rates

Conflicting market forces have had a strong impact on gold pricing, inflation, and higher rates. This is because higher inflation creates bullish market sentiment in gold, while higher interest rates create bearish market sentiment. As of 5:11 PM EDT, gold futures basis most active August 2023 contract is fixed at $1981 up $3.90 or 0.20% on the day. After the close of trading in New York yesterday the most active futures contract for gold moved from June 2023 (GCM23) to August 2023 (GCQ23).

The deal struck between President Biden and Speaker Kevin McCarthy over the three-day weekend contains bipartisan legislation in which neither side got everything they were hoping for, which is the only way for a compromise to be reached and a deadlock to be avoided. Yesterday the bill went to the Rules Committee and is scheduled for a vote by Congress today. Because it is a bipartisan bill composed of a compromise there is chatter on both sides of the political fence with both Republicans and Democrats who are opposed to the legislation as it stands.

That being said, it is widely anticipated that this bill will pass both the House and Senate and that a debt ceiling crisis will be avoided. This brings us to recent changes in the tone of many Federal Reserve officials. There have been a few Fed officials that have been calling for another rate hike at the FOMC meeting this month. This tone has softened in the last 24 hours as seen through the eyes of the CME’s FedWatch tool. Yesterday, this probability indicator predicted a 66.6% likelihood that the Federal Reserve would raise rates by ¼%, which is down to 34.9% today.

On a technical basis, gold futures continue to be above both a 50% retracement at $1948.30 and the 100-day moving average at $1942.90. The data set used for this retracement begins at $1810 (the low that occurred in February of this year) to $2085. Gold’s 100-day simple moving average is currently fixed at $1939.50. But because traders are now placing positions in the August contract month the support levels have risen slightly due to the higher bid-ask spread in the August contract month.

Gold opened at $1977.50, a few dollars above today’s low of $1971.80 but well below today’s high of $1993.10.

Wishing you as always good trading,