Waiting on The Fed

Although the probability of a rate hike at the conclusion of this month’s FOMC meeting next week is extremely high, traders, analysts, and investors continue to have a wait-and-see attitude.

The countdown clock on the CME’s FedWatch tool currently reads: 4 days, 19 hours, 9 minutes and counting, as of 3:51 PM Eastern standard time today.

Currently, the probability that the Fed will announce a rate hike stands at 94.4%, according to this tool. The current estimate of 94.4% predicts a 25-basis point hike (1/4 %) which would take Fed funds rate from 125 – 150 to 150 – 175. Which means that there’s only a 5.6% probability that the current Fed funds rate will stay intact. This number is down considerably from the probability given from the FedWatch tool one month ago on February 16. At that time, it was indicated that there was an 18.3% chance that the Federal Reserve would stay the course in keeping interest rates where they are.

Last month this tool predicted an 81.7% probability that a rate hike would result from this month’s meeting.

The belief that an interest rate hike is inevitable, coupled with a consistent and strong risk-on environment favoring equities, a strengthening U.S. dollar, as well as a geopolitical environment that is relatively muted and calm, continue to pressure the safe haven asset group.

The net result of these factors is that gold continues to lose ground, now in its fourth consecutive week of lower pricing. Gold futures have lost approximately $10 in trading this week and are currently fixed at $1313.50, this basis most active April futures contract.

An Ascending Bottom with Quadruple Top

The last week in which gold closed higher was the week of February 12. During that week gold pricing hit an intra-week high, just shy of 1365, creating a double top. A case can be made by market technicians that, in fact, February’s top was the third occurrence, creating a triple top if you add last year’s rally in September which concluded at 1362.

But truly this price point has created a quadruple top when factoring in the most significant rally of the last three years. This rally began in 2015 and concluded during July and August 2016 with intra-week highs occurring at $1373 to $1378 on three separate occasions during that time.

The rally of 2016 was the most significant rally since the multiyear correction in gold which began after gold traded to its all-time high at 1900 during the middle of 2011.

The rally, which began in January of 2016, was the first occurrence of a higher high than the previous high. This gave technical evidence that the extended, multiyear correction had concluded.

Since that point, traders have witnessed gold pricing moving to higher ground as indicated by a series of higher lows. However, the highs achieved in 2016 have still been an unobtainable price point.

Wishing you as always, good trading,