Gold continues to factor in hawkish Fed, pushing gold down

Less than 24 hours before the conclusion of the FOMC meeting, market participants continue to take into account a much more aggressive and hawkish stance on the part of the Federal Reserve to combat soaring inflation. At 5:30 p.m. EST based on gold futures, the most active February contract is currently trading at $ 16.70, a net decrease of 0.93% and pegged at $ 1,771.50.

Market participants have responded to an increase in producer prices in the United States, as this price increase will add to the current inflationary level. Today, the US Department of Labor announced that producer prices rose 0.8% in November. This brings the producer price index year over year to 9.6%. At the same time, the core inflation rate increased 0.7% to 6.9% year-on-year. Last Friday’s report said the CPI price index hit 6.9% in the 12 months to November, and is the biggest annual increase since June 1982.

Collectively, these recent reports indicate that inflation continues to rise and is likely to remain more persistent than the Federal Reserve previously assumed.

According to Reuters, “US producer prices rose more than expected in November as supply constraints persisted, leading to the largest annual gain since the series’ redesign 11 years ago and supporting the ‘idea that inflation could remain uncomfortably high for some time.

The two continued labor shortages associated with rising prices will most certainly accelerate the current extremely high level of inflation and increase the likelihood that the Federal Reserve will accelerate the reduction schedule to accommodate the take-off as it takes off. begins to increase the federal funds rate sooner than expected. . Tomorrow we will have our first look at the revised dot plot. This will be updated from the last version of the dot plot in September which indicated that there would only be one rate hike in 2022.

Currently, analysts have mixed opinions on how many rate hikes the Federal Reserve is planning next year. Estimates range from two rate hikes on the low estimates to four rate hikes on the high estimates.

According to BMO Capital Markets Senior Economist Sal Guatieri, “Inflation in the United States was even higher than expected in November and is now the fastest in almost four decades, with little near-term relief in view “.

UBS analyst Giovanni Staunovo summed up market sentiment by saying, “Market participants will be watching the upcoming Federal Open Market Committee meeting closely to see how the central bank responds to high inflation, which will likely lead to larger price movements.

With data indicating that inflationary pressures continue to rise, the Federal Reserve will most likely act in an extremely unaccommodating and hawkish position with respect to its adjusted monetary policy.

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Wishing you as always a good business and good health,