Gold News

Gold Bullion 'Sensitive' to US Fed's Hawkish or Dovish Tone as Tech Recession Deepens

GOLD BULLION prices edged higher versus a weakening US Dollar on Wednesday ahead of the Federal Reserve's first interest-rate decision of 2023.
Wholesale gold bullion bars traded in London rose to $1932 per ounce – almost 20% above start-November's 2.5-year low – after new data said US jobs growth slowed to the weakest in 2 years last month, missing analyst forecasts by almost 60%.
Global stock markets trimmed their earlier gains after retouching Monday's 5-month high on the MSCI World Index but remaining 14.2% below last New Year's all-time highs.
As gold rose before today's Fed decision, betting on the central bank's announcement continued to put near-100% odds on a rise of 0.25 percentage points, the smallest since last March's 'lift off' from zero, when US consumer-price inflation was running at 4-decade highs of 8.6%.
With inflation slipping back to 6.4% on the latest CPI reading, a 1/4-point rise today would take the Fed's overnight target rate to 4.75% per annum, the highest since the global financial crisis began in summer 2007.
That rate of interest will then be unchanged at Christmas 2023 according to 83.6% of betting on December's Fed decision, up from 65.6% this time last month on the CME derivatives exchange's FedWatch tool.
Chart of market-priced odds of Fed rates ending 2023 at 4.75% or below vs. the Dollar gold price. Source: BullionVault
"A dovish tone by the FOMC would ignite a continuation higher in gold while another hawkish surprise could easily see half of 2023's roughly 6% gain given back today," reckons one pundit quoted by MarketWatch.
"We believe gold will remain sensitive to the Fed’s monetary policy," agrees a strategist's blog from Dutch multinational bank ING.
"A less hawkish Fed is likely to lead to a weaker US Dollar, which would support higher [Dollar] gold prices. Any hint of rising hawkishness from the US central bank would likely push gold lower.
"Meanwhile, fears of recession should provide support for gold," the ING blog adds, forecasting a first-quarter average gold price of $1800 against the $1899 achieved so far.
With the Bureau of Labor Statistics' official estimate due out Friday, US employment rose by just 106,000 last month, the ADP payrolls report said today, the weakest ADP reading since January 2021 thanks to "extreme weather [hitting] California with record floods [plus] back-to-back storms [of] ice and snow to the central and eastern US."
The Dollar fell from yesterday's 2-week high on its trade-weighted index against the rest of the world's major currencies
With tech firms continuing to cut headcount after the stay-at-home computing, shopping and streaming TV boom of lockdown, shares in social-media platform Snapchat (NYSE: SNAP) lost some 15% in afterhours trade overnight after it reported weak ad sales and projected a decline in 2023 earnings.
Shares in software developer Electronic Arts (Nasdaq: EA) lost over 10% as it shelved mobile-phone versions of some popular games while cutting staff.
Global sales of tech devices will fall more than 5% in 2023 after dropping almost 12% last year, according to analysts Gartner Inc, saying that "the depressed economic market will continue to dampen demand" for personal computers, tablets and mobile phones.
Giant US automaker GM (NYSE: GM) in contrast yesterday gained 8.4% after it reported  record quarterly earnings plus a $650m investment in the production of battery-metal lithium.
Gold investing caution ahead of today's Fed decision however saw the giant GLD bullion-backed trust fund end Tuesday unchanged in size, while the smaller IAU from iShares shrank 0.1% with its first outflow since Christmas Eve.
All told, the quantity of bullion needed to back gold ETF investment funds worldwide has now shrunk by 11.1% since last April's record high according to data from the mining-industry's World Gold Council.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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