Gold was trading higher in the low double digits today. The gains are the result of two factors and tomorrow’s PCE inflation report. Currently, the April 2023 gold futures contract is trading around $14.20 and is fixed at $1981.10. At the same time, the June 2023 gold futures contract is priced at $1998, up $13.50. Today the June contract hit an intraday high of $2002.40.
Volume is decreasing in the April contract with open interest at 88,563. Volume in the June contract has an open interest of 145,716. Traders move from the April contract to the June contract, which is the next most active.
The dollar is currently trading down 0.43% and the dollar index is fixed at 101.86. The dollar has fallen sharply since October last year when the index traded to an intraday high of 114. It appears that the days of extreme dollar strength have receded sharply and we expect the dollar index could drop below 100.
Government bond yields are also lower, which has greatly increased demand for gold as a safe haven asset. Gains in US stocks did little to reduce demand for dockside facilities and did not appear to be detrimental to gold prices today.
As we discussed yesterday, market participants expecting the Fed to switch from a rate hike to a rate cut have been largely disappointed. Analysts and economists expect the Federal Reserve to either continue raising interest rates or pause at some point in the near future.
The CME’s FedWatch tool shows that professional traders are almost at odds between expecting a ¼% rate hike or a pause in rate hikes at the next FOMC meeting, which begins about a month from today and ends May 3rd. According to the CME’s probability indicator, there is a 43.6% chance that the Federal Reserve will pause its monetary tightening with rate hikes at each FOMC meeting and a 56.4% chance that the Fed will hike rates by ¼% . Yesterday, the CME’s FedWatch tool showed the Fed had a 67.4% chance of pausing rates, with a 37.6% chance of a ¼% rate hike. That’s quite a dramatic shift in the last 24 hours.
Finally, tomorrow, March 31, the US Federal Reserve’s preferred indicator of inflation, the PCE (Personal Consumption Expenditure Price Index), will be released. For now, forecasters expect inflation levels to remain high. If the PCE stays elevated as currently forecast, it could bolster the Federal Reserve’s resolve to hike rates rather than pause.
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I wish you good business as always,
Gary S Wagner
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