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Powell’s address to Senate Banking Committee spurs strong sell-off in gold

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Today Chairman Jerome Powell addressed the Senate Banking, Housing, and Urban Affairs Committee. As anticipated the chairman delivered a strong warning that the Federal Reserve will once again modify its monetary policy to deliver tougher rate hikes at a faster pace.

"The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,".

Furthermore, the chairman stated that, “If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes."

His address to the Senate implies that it is likely that the Federal Reserve will reverse the slower pace evident after the January FOMC meeting in which the Fed announced a 25-BPS rate hike. The smallest rate hike since March of last year. It also could be a warning that the Federal Reserve will raise its terminal rate objective from 5.1% to possibly 5.5% – 5.75%.

According to the CME’s FedWatch tool, there is a 70.5% probability that the Fed will raise rates by 50-BPS and a 29.5% that the Fed will be less aggressive with a 25-BPS rate hike. The probability pendulum has swung widely considering that one month ago on February 7 the FedWatch tool indicated a 90.8% probability of a 25-BPS rate hike with only a 9.2% probability of a more aggressive 50-BPS hike.

The Federal Reserve official's odds for a recommendation of a 50-BPS rate hike this month is more likely than anticipated before Powell’s address to the Senate today.

As of 4:15 PM EST, gold futures basis most active April contract is down $36 or 1.94% and fixed at $1818.60. This is the result of selling pressure by traders as well as a strong upside move in the dollar. Currently, the dollar is up 1.2% and the dollar index is fixed at 105.575.

Powell will address Congress tomorrow; however, it must be noted that Friday’s jobs report combined with next week’s CPI report will shape the final decision of the Federal Reserve at their next meeting.

Wishing you as always good trading,

Gary S. Wagner - Executive Producer