Dollar Down, Gold Price Hits $2050 as Markets Hear Fed's Waller, Ignore Bowman
Wednesday, 11/29/2023 14:28
GOLD extended its steep climb for US investors on Wednesday, hitting a new 5-month high at $2050 per Troy ounce in early Asian hours while the Dollar slipped further on the currency market as bond traders and interest-rate speculators seized on comments about cutting US interest rates from one Federal Reserve policymaker but ignored another calling for rates to rise.
"In case it wasn't obvious," says Nick Timiraos, financial author and chief economics correspondent of the
Wall Street Journal, "there is
little appetite even among some hawks for a Fed hike at the next meeting."
But while Fed 'hawk' Christopher Waller said yesterday that the US central bank's next move will most likely be a cut to interest rates sometime before June 2024, fellow voting member Michelle Bowman said she expects at least one more rise to ensure that inflation keeps falling.
Waller's comments also contrasted with a repeat of
'higher for longer' from other Western central bankers, including
two UK Bank of England
policymakers, one from the
Reserve Bank of Australia, plus the Eurozone's
Yannis Stournaras, head of the Bank of Greece.
Trading around $2037 per Troy ounce at today's London 10:30am benchmark auction, gold has fixed higher on only 3 mornings before in US Dollar terms – twice in August 2020 (during the first-wave Covid crisis) and once in May 2023 (during the US regional banking mini-crisis).
For Euro investors, gold at €1857 has fixed higher 11 times before now at the AM London auction. For
the UK gold price in Pounds per ounce, now at £1606, that figure is 28.
Adjusted by the Dollar Index of the US currency's trade-weighted foreign exchange rates, the price of gold ended last month at a new all-time high, slipping 1.5% so far in November as the Dollar-price has gained 2.1%.
"Gold's rally outweighs Dollar weakness," notes bullion-market analyst Rhona O'Connell at brokerage StoneX.
But while "Tailwinds still trump headwinds...a correction [is] necessary."
"There just hasn't been a new bullish catalyst / narrative in gold for the market to sink their teeth into," says strategist Nicky Shiels at Swiss bullion refining and finance group MKS Pamp.
"So what is going on?"
Shiels' list of likely causes for gold's steep climb runs from a market consensus that
"the Fed is done" raising Dollar interest rates, pressuring the US currency on the FX market, through to "the trend is your friend" with a rising technical channel on gold-price charts, plus heavy buying during Asian business hours, when activity is more typically "thin" compared to European/US hours.
"[That] indicates participants/speculators are really looking to pressure markets and pricing, and/or Asian strategic/wealth/central-bank allocation."
While the odds of the first policy cut from the US Federal Reserve coming in March today held at 50-50 according to
traders in CME interest-rate futures, betting on the following Fed meeting in May now puts the chance of a cut at 4-in-5, almost twice the likelihood predicted this time last month.
Having said last month that "something's gotta give" between slower inflation and stronger economic data, "Something [now] appears to be giving," said Fed governor and
famous 'hawk' Christopher Waller on Tuesday – giving
that title to his entire speech – "and it's the pace of the economy."
"If you see this [lower] inflation continuing for several more months, I don't know how long that might be – 3 months? 4 months? 5 months? – you could then start lowering the policy rate because inflation's lower."
But inflation may rebound in 2024, warned fellow governor and 'hawk' Michelle Bowman at a separate event, saying that the slowdown in price increases so far has mostly come due to supply-chain blockages finally easing after Covid lockdowns ended, with America's tight labor market – plus government policies such as the CHIPS and IRA Acts, which are "encouraging greater investment in...areas without the necessary physical resources to support [that] development" right now –
adding to wage and cost pressures.
"My baseline economic outlook," Bowman concluded, "continues to expect that we will need to increase the federal funds rate further to keep policy sufficiently restrictive to bring inflation down to our 2% target in a timely way."
Like gold on Wednesday, silver prices also peaked in early Asian trading hours, rising above $25 per Troy ounce for only the 5th time in 2023 so far.
Profit-taking in silver-backed ETF trust fund products has shrunk the sector's shares in issue by 0.5% so far this month, notes O'Connell at StoneX.
Gold ETFs in contrast have seen some "scattered buying" leading to a total net increase of 0.1% since the start of November, edging the quantity of bullion needed to back the sector's value just above October's 43-month low, the smallest since the Covid pandemic went global in March 2020.
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