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April 17th - Gold prices rebounded somewhat amid optimism surrounding US-Iran negotiations, but further gains may be limited until the geopolitical situation becomes clearer. Analysts at Commerzbank stated, "Gold prices also rebounded on hopes of an end to the war, as this eased concerns that central banks would have to adopt tighter monetary policies to combat higher inflation risks, thus increasing the opportunity cost of holding gold. However, as long as uncertainty remains high, the potential recovery in the gold market may be temporarily exhausted."On April 17th, Goldman Sachs Head of Asset Allocation Research, Mueller Grissmann, stated that the recent stock market rally needs the Federal Reserve to resume interest rate cuts to maintain its momentum. He described the recent stock market rebound as a "rapid and intense recovery phase," driven in part by technical factors, including hedge funds that had previously sold off stocks to reduce risk and are now forced to rebuild their positions. While the S&P 500 is on track for a third consecutive week of gains exceeding 3%, he questioned whether the rally could be sustained without monetary policy support. He noted that the stock market rally coincided with high oil prices and a lagging credit market. The stock markets strong performance is partly due to its high exposure to technology stocks.The Kremlin warned that Europes provision of drones to Ukraine is dragging Europe toward war with Russia, and that these countries involvement in the war is escalating.On April 17th, Ebury strategist Matthew Ryan stated in a report that the pound would face downside risk if the ruling Labour Party performs poorly in the May local elections. He said this would further increase pressure on Prime Minister Starmers position, and the pound would be under pressure if the market anticipates that his potential successor will lead to greater spending and debt. Starmers fate has been questioned after media reports that former US Ambassador Peter Mandelson failed a security vetting process but was still approved for the position. Ryan stated that the betting market now considers the possibility of Starmer leaving before the end of June to be a real possibility.On April 17th, the China Securities Regulatory Commission (CSRC), based on the public consultation in March 2023, and considering new situations and problems encountered in the regulatory practice of the futures industry, further studied and demonstrated the relevant institutional arrangements of the "Measures for the Supervision and Management of Futures Companies," resulting in a new "Draft Measures for the Supervision and Management of Futures Companies (for Public Comment)." Simultaneously, an "Announcement on Relevant Implementation Matters (for Public Comment)" was drafted as supporting implementation regulations. Public comments are now being solicited. The new "Draft Measures for the Supervision and Management of Futures Companies (for Public Comment)" changes the management of futures market-making and derivatives trading businesses, which were previously operated by risk management subsidiaries and subject to registration and self-regulation by the China Futures Association, to be operated by futures companies. It also implements licensing and administrative supervision, and strengthens the supervision of futures company subsidiaries and branches.

Investors Concentrate on China and Fed Statements, Putting Pressure on Gold

Alina Haynes

Nov 29, 2022 15:01

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Gold futures basis for the December 2022 Comex contract is $1740 as of 4:48 PM EST, after adjusting for today's fall of $14, or -0.80%. In a few of days, the most active or front month for gold futures will switch from December to February 2023. Currently, the Comex gold contract for February 2023 is down $14.10 and set at $1754.70.

 

The December silver futures contract is also trading lower today. Futures for December are currently down -2.59%, or $0.56, and set at $20.87. The most active front-month contract for silver futures is likewise shifting from December to the March 2023 contract, which is currently down 54.9 cents, or -2.59%, and is fixed at $21.065.

 

You should only trade with capital that you can afford to lose while trading derivatives. The trading of derivatives may not be suitable for all investors; thus, you should ensure that you fully comprehend the risks involved and, if necessary, seek independent counsel. Before entering into a transaction with us, a Product Disclosure Statement (PDS) can be received through this website or upon request from our offices and should be reviewed. Raw Spread accounts offer spreads as low as 0 pips and a commission rate of $3.50 per 100,000 USD traded. Spreads on standard accounts begin at 1 pip with no additional commission fees. CFD index spreads begin at 0.4 points. This information is not intended for inhabitants of any country or jurisdiction where distribution or use would violate local law or regulation.

Why have the prices of gold and silver dropped today?

Today's weakness in both gold and silver is the result of a combination of factors. Concerns over large protests in China are prominent. According to the New York Times, after a weekend of clashes between officials and protesters, video footage from two sites in Shanghai and Beijing revealed a substantial security presence.

 

Citizens of China have demonstrated against China's harsh Covid restrictions and lockdowns, resulting in countrywide demonstrations. Investors are concerned that lockdowns and stringent restrictions will stifle economic growth in China, the second-largest economy in the world.

 

Several members of the Federal Reserve have been quite vocal about expected interest rate increases. James Bullard, president of the St. Louis Fed, is one of the Federal Reserve's more hawkish members. Last week, he stated that the Federal Reserve's benchmark rate should go to as much as 7 percent in order to combat inflation.

 

When asked this week by Greg Robb, an editor at MarketWatch, how long he expects the fed funds rate to remain in the 5% to 7% range, he stated that "the Federal Reserve will likely need to keep its benchmark policy rate above 5% for the majority of 2023 and into 2024 in order to successfully combat inflation."

 

During his interview with MarketWatch, he also stated, "It appears that markets are still underestimating the extent to which the Fed will need to maintain a restrictive monetary policy in order to rein in inflation, explaining that there is still some hope that inflation will decline on its own."

 

When Chairman Powell talks on Wednesday at an event organized by the Brookings Institution in Washington, investors are wondering if he would tone down his aggressive stance. Current consensus holds that the Federal Reserve will increase its benchmark rate by 50 basis points in December.

 

However, the likelihood of a 50-basis point rate increase has decreased. There is a 67.5% chance, according to the CME's FedWatch program, that the Fed will raise its benchmark rate by 50 basis points at the final FOMC meeting of the year. A day ago, the CME's FedWatch program predicted a probability of 75.8%, and a week ago, it predicted a probability of 80.6%.


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