Gold Erases Earlier Gains After Fed Officials Stir Policy Debate
Comment of the Day

November 16 2021

Commentary by Eoin Treacy

Gold Erases Earlier Gains After Fed Officials Stir Policy Debate

This article from Bloomberg may be of interest to subscribers. Here is a section:

St. Louis Fed President James Bullard said Tuesday that the U.S. central bank should be more aggressive in managing risks from price pressures. Bullard participates in the Federal Open Market Committee, which sets direction of U.S. monetary policy, and will become a voting member next year.

“I think it behooves the committee to go in a more hawkish direction in the next couple of meetings so we are managing the risk of inflation appropriately,” Bullard said in a Bloomberg Television interview with Michael McKee, Lisa Abramowicz and Tom Keene.

Eoin Treacy's view

James Bullard will be a voting member of the Fed’s Open Market Committee next year. His pronouncements tend to carry more weight than Neel Kaskari’s, who won’t be a voting member until 2023.

Gold eased back from a fresh recovery high on this news to form a small downside key day reversal. Some consolidation appears likely in order to unwind the short-term overbought condition. As the region of the May high was approached, it likely encouraged some shorts into the market to pressure stops. That suggests the $1800 area is a likely area of potential support.

It is extremely unlikely the Fed is going to come anywhere close to raising rates to 3% in this cycle. The 2y2y Swap rate is currently at 1.5% and still trending higher. A near doubling from here would be a significant event that implies runaway growth and economic expansion to tolerate that kind of tightening. It also ignores the interest rate sensitivity of the global economy following years of outsized bets on the promise of future cashflows.

Bitcoin’s drop back to test the lower side of its short-term range and the region of the psychological $60,000 is also noteworthy. The price will need to hold the $57000 level if a failed upside break and potential for a significant retracement are to be avoided.

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