Gold near key support as market mulls Fed hiking into recession Gold near key support as market mulls Fed hiking into recession Gold near key support as market mulls Fed hiking into recession

Gold near key support as market mulls Fed hiking into recession

Ole Hansen

Head of Commodity Strategy

Summary:  Gold and especially silver slumped on Tuesday after Fed Chair Powell said the Fed was prepared to increase the pace of rate hikes and to a higher-than-expected level should incoming data continued to show strength. Gold has despite the stronger dollar and rising rates risk managed to find support ahead of key support in the $1800 area, driven by the risk of either economic data turning softer or higher rates forcing a policy mistake leading to peak rates and recession, all events that may end up being supportive for gold and precious metals in general


Today's Saxo Market Call podcast
Today's Market Quick Take from the Saxo Strategy Team
Equity update: Powell turns hawkish - The calm before the storm?
Forex update: Powellb surprises hawkish, data still in driver's seat


Gold and especially silver slumped on Tuesday after Fed Chair Powell, in his prepared remarks to Congress, said the Fed was prepared to increase the pace of rate hikes and to a higher-than-expected level should incoming data continued to show strength. Terminal Fed rate expectations shifted higher to 5.66% with the market now pricing in a 60% risk of a 50 bp move at the March 22 meeting. 

Across market risk appetite tumbled, not least due to the dollar hitting a fresh high for the year,  with the selloff in metals being led by silver’s 4.6% slump to a four-month low near $20. Gold meanwhile has given back most of last week's bounce and following the failure to challenge resistance at $1864 and stay above the 21-day moving average, a development that otherwise would have signalled a return of positive momentum, the market is once again looking for support in the $1800 area ahead of $1775, the 200-day moving average.

Source: Saxo

During the Q&A session that followed his prepared statement, a tasty exchange between Powell and Sen. Elizabeth Warren (D) highlighted the risk the FOMC, not fully understanding their limitations in bringing inflation under control, will continue to hike rates until something brakes. The senator asked Powell what he would say to two million people losing their jobs if he keeps raising rates. To this he answered: “Will working people be better off if we just walk away from our jobs and inflation remains 5%-6%?”.

His comment further supported the view that the FOMC will hike faster, higher and for longer, with the obvious risk to the economic outlook and with that the eventual need to cut rates. We will continue to watch the dollar closely given its strong inverted correlation with gold, and now also increasingly how the market price the risk of a recession and with that the scale of the eventual drop in rates. We follow this through the size of the 2-10 year inversion of the US yield curve, currently at 107 basis points, and highest since 1981, and the one year spread between the September 2023 and September 2024 Fed funds futures. From a the current peak priced in around September the spread is looking for a +100 basis point drop the following twelve months. This is important given gold’s often powerful performance in the months that followed a Fed pause in rates.


In the short-term with Powell signalling an incredible data dependency, the focus now turns to incoming US data with the first being Friday’s job report. Given the level of elevated rate hike expectation currently priced in, any weakness in incoming data may now trigger a stronger positive response than otherwise called for. 

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) Ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law. 

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.