Image Source: Pexels

Fundamentals

Policymakers have raised interest rates to 5 percent, but they skipped a rate increase at their June meeting, after 10 straight moves, to give themselves time to assess how much more would be needed. Officials forecast that they could lift rates to 5.5 percent by the end of the year.

Investors had been betting on only one more quarter-point move this year, but they have in recent days nudged up the chances of two moves before the end of 2023. Those odds fell slightly after Friday's report. Markets broadly welcomed the fresh data, helping to push the S&P 500 stock index more than 1 percent higher on Friday.

Ms. Bostjancic said she believed that the Fed would most likely raise interest rates in July still, but that Friday's consumer spending data could - at least at the margin - "ease the pressure" for further changes beyond that.

Jerome H. Powell, the Fed chair, emphasized this week at an event in Madrid that the outlook for how much more rates might move this year was uncertain.

Inflation has consistently been "more persistent and stronger than expected," Mr. Powell said. "At some point, that may change. And I think we have to be ready to follow the data and be a little patient as we let this unfold."

The Federal Reserve's interest rate decisions often have a significant impact on the price of gold, and a pause in rate hikes can have a particularly interesting effect. Here's why:

Gold is a non-interest-bearing asset, meaning it doesn't pay interest or dividends to its holders. When interest rates are high, investors are likely to prefer assets that generate income, like bonds or savings accounts. Therefore, rising interest rates often lead to a decrease in the demand for gold, and thus lower gold prices.

Conversely, when the Federal Reserve decides to pause or decrease interest rates, gold becomes more attractive. Lower interest rates reduce the opportunity cost of holding gold, which could lead to an increase in demand and, therefore, higher gold prices.

However, this relationship isn't always straightforward. Other factors, such as inflation, geopolitical risks, and the overall state of the economy, also affect gold prices. For example, even if interest rates are paused, but inflation is high (which erodes the value of money), investors may still flock to gold as a 'safe haven' asset, pushing its price higher.

So, if the Fed decides to pause rate hikes, we could see an increase in gold prices, all other things being equal. But the real impact will depend on a complex mix of other factors in the economy.

As the Fed's balancing act in terms of more rate hikes continues, the gold market seems like it might have discounted this news by making a stab at the 1900 levels and reverting to close almost unchanged from last week's action. The 1900 handle was at the extreme below the monthly mean or standard deviation. It looks like a monthly key reversal. Confirmation of this bottom is a monthly close above 1943.

Let's examine next week's standard deviation report and see what monthly trading opportunities we can identify. This report is published in the Mean Reversion section of Marketplace.

Gold: Monthly Standard Deviation Report

Jul. 01, 2023, 2:11 PM ET

Summary

• The monthly trend momentum of 1907 is bullish.
• The monthly VC PMI of 1943 is bearish price momentum.
• A close above 1943 stop, negates this bearishness neutral.
• If short take profits 1886 - 1843. If long, take profits, 1987 - 2044.
• Next cycle due date is 7.15.23.

Monthly Trend Momentum:

Hey there, let's talk about the monthly trend momentum for gold futures. We're seeing the contract closing at 1929.4, which is above the 9-day SMA of 1907. This is a good sign for the bulls. But don't get too comfortable - if we dip below that 9-day SMA, we could be looking at a switch from bullish to neutral.

Monthly Price Momentum:

When we peek at the monthly price momentum, we see a different story. The market's closed below the VC Monthly Price Momentum Indicator of 1943, so it's bearish vibes all the way. But don't lose hope - if we manage to close above the VC Indicator, we could switch this bearish signal to a neutral one.

Weekly Price Indicator:

On the monthly price indicator, if you're thinking about shorting, consider taking profits on corrections at the 1886 and 1843 levels. And if you're going long, use the 1843 level as your Monthly Stop Close Only and Good Till Cancelled order. Also, you might want to cash in on those longs when we hit the 1987 to 2044 levels this month.

Cycle:

In terms of cycles, circle the 15th of July 2023 in your calendars - that's the next due date.

Strategy:

And for your strategy, if you're going long, aim for profits between 1987 and 2044. If you're playing short, target profits between 1886 and 1843.

More By This Author:

Gold: We Appear To Be Heading Inevitably Toward Inflation In 2021
Gold: Welcome To Inflation 2020
Grayscale Bitcoin Trust: Extreme Level Below Mean Activates Buy Signal