Market sentiment for gold adjusts to recent Fed official comments

The Merriam-Webster Dictionary defines sentiment as “an attitude, thought, or judgment prompted by feeling: preference.: a particular view or conception: opinion.: emotion.: refined feeling: subtle sensibility, particularly as expressed in expressed in a work of art. : emotional idealism.”

In relation to financial markets, market sentiment is the view or attitude that drives our opinion on whether an asset class is overvalued or undervalued. It shapes and changes the value of a stock or commodity price.

Market sentiment is overly sensitive to speech and comment from Federal Reserve officials, as these individuals have the power and influence to change monetary policy. There is a dramatic difference between the Federal Reserve’s perception of upcoming monetary policy changes and the actions of Federal Reserve officials.

The Federal Reserve hiked rates at every FOMC meeting this year except January, a total of six rate hikes from March through November. During the last four FOMC meetings (June, July, September and November) they hiked rates by 75 basis points. The aggressive nature of the US Federal Reserve’s monetary policy drove gold lower dramatically from March through early November. Gold traded to its highest level this year in March at $2078. By early November, the price of gold had fallen to around $1621, resulting in a 21.99% drop in price.

In the first week of November, market sentiment changed as inflation rates had eased slightly and investors took this modest decline as a signal that the Federal Reserve would begin to ease aggressive monetary policy. This caused gold to surge dramatically from $1621 to an intraday high of $1792 by Tuesday, November 15th. With the CPI index falling to 7.7% yoy in October from 8.2% yoy in September, investors believed the Federal Reserve was becoming more dovish about upcoming rate hikes.

However, Federal Reserve Governor Christopher Waller said at a conference in Sydney, Australia on Sunday, November 13: “We are not softening … Stop looking at the pace and start looking at it to pay attention to where the end point will be. Until we get inflation down, that end point is still a way out.” On November 14, several Federal Reserve officials made opposing comments.

San Francisco Federal Reserve Chair Mary Daly: ‘It’s far from a win’ Lorie Logan, Dallas Federal Reserve Chair, said last week’s report was “a welcome relief” but will not lessen the need for further rate hikes, possibly at a slower pace.

Statements made over the weekend and on Monday, November 14th have dramatically shifted market sentiment towards the price of gold. Gold prices hit intraday highs above $1790 the following day and then began posting three straight days of price declines from Wednesday through Friday. To add fuel to the fire, St. Louis Federal Reserve Chairman James Bullard said the Fed’s benchmark rights might need to increase by as much as 7%.

The statements moved gold prices to current prices from Tuesday’s high. As of 4:27 p.m. EST, the most active December futures contract is currently fixed at $1751.30 after factoring in today’s net decline of $11.60. The statements are likely to continue creating bearish market sentiment for gold.

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Disclaimer: The views expressed in this article are those of the author and may not reflect those of the author Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. It is not an invitation to exchange goods, securities or other financial instruments. Kitco Metals Inc. and the author of this article assume no responsibility for any loss and/or damage resulting from the use of this publication.

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