Daily Report – 23 June 2022

Fundamental Report: The Gold futures are under pressure early Thursday after Federal Reserve Chair Jerome Powell reaffirmed the central bank’s inflation fight while testifying before the U.S. Senate Banking Committee the previous day. Additionally, investors appear to be unfazed by Powell’s proclamation that a recession is a real threat to the economy. At 04:53 GMT, August Comex gold futures are trading $1834.70, down $3.70 or -0.20%. On Wednesday, the SPDR Gold Shares ETF (GLD) settled at $171.33, up $0.70 or +0.41%. Gold prices moved higher but remained rangebound. The dollar eased slightly as treasury yields declined. The move in the bond market came despite a hawkish Fed testimony. Since gold prices are quoted in dollars, a weaker greenback generally leads to higher gold prices. Fed Chair Powell was on the hill on Wednesday. His remarks are part of a congressionally mandated semiannual report on monetary policy. The comments are commonly known in markets as the Humphrey Hawkins report. A Federal Reserve Chairman, Jerome Powell, told congressional lawmakers that the central bank is determined to bring down inflation and can make that happen. On Wednesday, Fed Chairman Jerome Powell said that 1% increases were a real possibility. This serves as a strong reminder that gold prices could feel further pressure. When asked by a member of the Senate Banking Committee if the Fed could raise rates by as much as 100 basis points at once, Powell said he would never take anything off the table, and officials would make whatever moves were needed to restore price stability.

Concerns over a possible recession have weighed on investor sentiment in recent weeks. Federal Reserve Chairman Jerome Powell on Wednesday told Congress the central bank is “strongly committed” to curb inflation which is running at a 40-year high. Investors are increasingly concerned aggressive monetary tightening would tip the U.S. economy into a recession, CNBC reported. “At the Fed, we understand the hardship high inflation is causing,” the Fed chief said to the Senate Banking Committee. “We are strongly committed to bringing inflation back down, and we are moving expeditiously to do so.” Talk of additional rate hikes from the Fed are helping to keep a lid on gold prices, but worries about a recession are propping up prices. That adds up to a rangebound trade. Most of what Powell said about rate hikes has already been priced into gold. This makes the recession the wildcard. Falling Treasury yields are one indication that some traders are betting on a recession. However, we’re not seeing the same bets in the gold market. This could mean that gold traders want to see stronger evidence of a recession. It could also mean that gold traders want to see Treasury yields drop further before spiking to the upside. We may not be close to that level yet. Furthermore, Wall Street is only betting on a 50/50 chance of a recession at this time. Citigroup is the latest bank to raise its recession odds, up to 50%, pointing to indicators that consumers are starting to pull back on spending. “The experience of history indicates that disinflation often carries meaningful costs for growth, and we see the aggregate probability of recession as now approaching 50%,” read a note from Citigroup. The current price action in gold suggests traders are also 50/50 about a recession. With the markets flipping back and forth between inflation fears and recession fears, gold prices are likely to remain rangebound over the short-run. Gold traders want to see more evidence about the trend in inflation and the strength of the economy before making their next major move. So sit tight because I think they may have to wait until the U.S. Non-Farm Payrolls report on July 8.