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Gold gains as Investors realign focus from the Fed to the Middle East conflict

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Gold futures hit an intraday low of $2004.60 yesterday and closed just off of that low at $2006.50. The $23 decline was largely in response to the retail sales report which revealed that consumer sales rose by 0.6% month over month in December. This would be the second consecutive day of strong price declines in gold. 

On Tuesday, January 16, gold futures declined by $21.40. The strong selloff was the result of dollar strength a gain of + 0.75%, which occurred following comments made by Governor Christopher Waller, one of the Fed’s twelve voting members at a speech at the Brookings Institution. His speech reinforced what Chairman Powell said at his press conference in December.

His statements spoke to counter the unrealistic optimism by many market participants regarding the Fed cutting rates at the March FOMC meeting. He said that while interest rate cuts are likely this year, the central bank can take its time relaxing monetary policy. Furthermore, He addressed the fact during previous cycles the FOMC cut rates quickly and often by large amounts adding that, “I see no reason to move as quickly or rapidly as in the past”.

Today market participants shifted their focus from the Federal Reserve as they await further clarity on the Fed’s future interest rate path and instead focused on the potential that the Middle East conflict will continue to escalate. Continued attacks in the southern Red Sea by the Houthis a military proxy of Iran, as well as yesterday’s military action by Iran. Iran fired missiles into Iraq, Syria, and Pakistan killing at least six civilians. 

The escalation of the conflict in the Middle East intensified the allure of the haven asset gold. As of 5:35 PM ET the most active February contract is up $15.10 or 0.75% and fixed at $2021.60. It seems that the current major support level at $2000 per ounce is holding and is providing a price low that attracts investors.

Wishing you as always good trading,

Gary S. Wagner - Executive Producer