Daily Report – 09 November 2022

Fundamental Report: On General uncertainty about the elections appears to be keeping investors on the sidelines although their major focus this week is likely to be centered on Thursday’s U.S. consumer inflation data since it will determine future Fed policy, the direction of interest rates and the U.S. Dollar, and ultimately gold prices. Due to procedures in the U.S., we may not know the outcome of the elections until Thursday, which means traders could be caught in limbo for several days. Generally speaking, if the Republicans win the Senate, we could see a reaction in all the major financial markets. With the Republicans considered to be pro-business, we expect to see bullish moves in higher-risk asset classes. With investors seeking the highest return for the risk, gold is likely to lose ground since it doesn’t pay a dividend or interest. The traders are still reacting to last week’s big Federal Reserve rate hike and a strong U.S. jobs report for October that ensured the Fed will be in no rush to pivot away from its aggressive tightening of monetary policy.

Furthermore, in a press briefing after the Fed meeting last Wednesday, Fed Chair Jerome Powell cautioned against prematurely discussing a pause in hiking rates in the face of persistently high inflation. The market is very sensitive to economic data at this time since some investors see the light at the end of the tunnel when it comes to future rate hikes. Long-term gold bulls don’t want to get caught flat-footed when the market finally turns. This is probably why we may have seen the overreaction to the greater-than-expected rise in U.S. unemployment data on Friday. As It is still early to predict what the Federal Reserve will do at the December 14 FOMC meeting. However, according to the CME’s FedWatch tool, Fed fund futures traders are split almost equally between whether or not the fed will raise rates by 50 or 75 basis points. There is a 52 % probability that the Federal Reserve will raise rates by 50 basis points and a 48% probability that the Fed will raise their benchmark rates by 75 basis points. This would take the benchmark rate to between 425-450 basis points or between 450 – 475 basis points if the Fed raises rates by 75 basis points. Regardless of what actions the Federal Reserve does at their next FOMC meeting, one thing is exceedingly clear; after five consecutive rate hikes at every FOMC meeting since March inflation according to the CPI remains above 8%. It is difficult to perceive that the Federal Reserve will begin to pause or ease interest rate hikes as long as inflation remains at a 40-year high. Some gold traders are following a lot of noise in the market at this time including Friday’s dip in the unemployment rate and unverified reports that China is preparing to relax its strict COVID restrictions. These moves have chased on some of the weaker shorts over the past week. However, despite the news, the key focus should remain on the direction of Treasury yields. They will ultimately determine the direction of gold prices. Another key indicator that I like to watch is the holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund. It fell to 905.48 tonnes on Monday, its lowest level since early 2020.