A Return to Calmer Waters

Gold traders witnessed a return to calmer waters as the wild price swings from yesterday’s release of January’s FOMC meeting minutes have subsided.

It seemed as if yesterday’s price action was a battle between the hawks and the doves. The initial dovish sentiment perceived in the minutes released yesterday quickly turned hawkish as traders and analysts adjusted their interpretation of the information.

The precious metals markets, along with equities and the U.S. dollar, had an extended knee-jerk reaction to the Fed minutes yesterday. Typically, there is a knee-jerk response that plays out as key reports or economic data are released. However most of the time this knee-jerk reaction occurs over an extremely small-time period, lasting only a few minutes as the adjusted market sentiment quickly embodies trading decisions.

Yesterday was different in that the initial interpretation of the data did not account for economic data which came out after January’s meeting until 20 minutes after the minutes had been released.

It seems the initial reading of the data indicated a much more dovish stance than anticipated. However, on closer inspection of the minutes, analysts saw a more hawkish stance emerge. This delayed reaction took roughly 70 minutes to play out.

Immediately following the release of the FOMC meeting minutes from January was this dovish interpretation. As such, gold futures moved from $1329 per ounce to $1338 per ounce in a 20-minute time span.

However, it became apparent that the information contained within the minutes did not account for the CPI data released in February indicating that inflation was in fact heating up, resulting in a 180° reversal in multiple financial markets.

In the time span of 50 minutes, this sharp reversal took gold futures from $1,338 to $1,324 before settling into a six dollar defined a narrow trading range.

According to Peter Hug of Kitco News, “At first, the markets saw the minutes as dovish and both the metals and equity markets shot higher. Then the market realized that the minutes were from before the higher inflation data that was released in February and the Trump tax cut. The market assessed that had this data been considered, the Fed would have been much more hawkish and the markets reversed with momentum.”

Today market participants witnessed muted activity defined by narrow trading ranges with gold futures up just over a dollar, and a quarter percent decline in the dollar index.

Our technical studies indicate minor resistance in gold at $1,336 with major resistance at the recent tops hitting just above $1,360. Support is currently at $1,317 with major support at $1,302.

Wishing you as always, good trading,