Investors yearn for insight into the Fed's upcoming monetary pivot

For the first time since March 2022 the Federal Reserve spoke of an upcoming pivot from its former highly restrictive monetary policy based upon aggressive rate hikes, to an accommodating stance based upon rate cuts. Federal Reserve officials have been open and transparent in communicating that the time to reverse its course and lower its benchmark rates is approaching. However, they have not presented any concrete timeline or, at a minimum, when it will initiate the first rate cut.

When pressed for an answer, the narrative continues to be, “our decision will be data dependent, and we need more data.” This has left analysts, market participants, and investors wanting more. It is this lack of the simplest forward guidance, which in a best-case scenario is announcing a rate cut by May or June of this year.

Recent data has demonstrated that the restrictive monetary policy of the Fed has been has had a profound impact moving inflation from its high in June 2022 above 9%.

The constant inquiries being requested by investors might be answered this week, as multiple Federal Reserve officials are scheduled to speak. On Tuesday, Federal Reserve officials commented that if the US economy performs as expected, it could be the first step that could lead to a rate cut.

However, Federal Reserve officials are exceedingly proficient when it comes to speaking articulately yet yielding no definitive information. It seems many officials have a narrative in which they express that inflationary pressures are moving in the right direction, with the caveat that the fight is not done yet.

The most concrete and definitive information came from Chairman Powell, in which he left little doubt that a rate cut in March is overly optimistic and unlikely.

The net result has been a pause for any rally in gold. As of 6:25 PM ET, gold futures basis, the most active April contract is trading off by $0.70 overseas. Gold did manage moderate gains yesterday of approximately $8.00. However, the lack of any strong resolve on the part of investors and traders has had limited forward momentum.

On November 13, gold traded to an intraday low of $1975. Since then, it has been trading with both lower highs and higher lows. On the daily chart, a pennant pattern has formed. In the case of the current pennant pattern, after completing its bullish flagpole, it likely that it will break above the upper-level resistance trend line. If gold does break above the resistance trend line its most likely upside target would be $2080, above that major resistance lies at $2100.

Wishing you as always good trading,