Gold futures experienced a dramatic selloff over the past two trading days, plummeting by more than $88 per ounce, as the release of the Federal Open Market Committee (FOMC) meeting minutes fueled concerns about a more hawkish Federal Reserve.
The minutes from the FOMC's April 30-May 1 meeting, published on Wednesday, revealed that Federal Reserve officials were dissatisfied with recent inflation reports. While some members remained optimistic that inflation would eventually cool, others expressed doubt about the pace of disinflation.
According to the minutes, "Participants...noted that they continued to expect that inflation would return to 2% over the medium term, but the disinflation would likely take longer than previously thought."
Moreover, the minutes indicated that Fed members discussed the possibility of additional rate increases if inflation remained stubbornly high. However, the current consensus is to maintain the federal funds rate within the 5.25% to 5.5% range for now.
"Various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate," the minutes stated.
The hawkish tone of the minutes caught market participants off guard, prompting analysts to revise their expectations for the magnitude and timing of potential rate cuts this year.
The impact on financial markets was swift and severe, with precious metals bearing the brunt of the selloff. Gold futures, based on the most active June contract, opened at $2,425.40 on Wednesday and closed at $2,392.90, down $33. The selling intensified on Thursday, with gold futures opening at $2,383 and ultimately settling at $2,337.20, a decline of $57.70 for the day.
In just two trading sessions, gold futures have shed more than $88, reflecting the market's heightened anxiety over the prospect of higher interest rates for an extended period.
Interestingly, the U.S. dollar's strength was not a significant factor in the selloff, as gold had reached an all-time high of $2,454.20 on Monday before closing at $2,438.50.
Market participants rushed to take profits from the recent rally in gold prices after the FOMC minutes revealed the Federal Reserve's uncertainty about the timing and magnitude of future rate cuts. However, it's worth noting that the FOMC meeting occurred before the release of the latest Consumer Price Index, which showed the first decline in inflationary pressures this year.
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