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August 26th - As markets closely watch for clues about the timing of the Bank of Japans next interest rate hike, BOJ watchers will be closely monitoring Deputy Governor Ryozo Himinos speech on Thursday. SMBC Nikko Securities strategist Ataru Okumura stated, "While there are limitations to how much a single speech by a BOJ deputy governor can guide market expectations, the focus will be on how firm his wording is on controlling inflation." Okumura added that although the bond market firmly expects the BOJ to raise rates sooner rather than later, investors doubt the banks ability to push rates above the restrictive level of 2%, making the future path of interest rates a key focus for the market.August 26th - According to the Financial Times, US Treasury Secretary Bessetts intervention in the bond market runs counter to the Federal Reserves efforts to curb inflation. Bessetts unexpected intervention in the US Treasury market caused yields to initially fall before rising, triggering a market reaction that puts greater pressure on Warshs speech in Jackson Hole on Friday. Warsh has consistently emphasized that investors should rely more on economic data and market prices rather than waiting for "forward guidance" from central bank officials to tell the market about future interest rate trends. There are now concerns that if Bessetts efforts to control yields remain ineffective, the Federal Reserve may also face pressure to intervene in the market. Warsh and Bessett are both protégés of billionaire Stanley Druckenmiller, and the two reportedly have a close relationship and meet frequently. However, the current impression is that their respective Treasury departments and the Federal Reserve are "moving in opposite directions."ECB Executive Board member Schnabel: At the current policy rate, inflation is unlikely to return to the target level in the medium term, and further tightening of policy will be necessary.ECB Executive Board member Schnabel: The risks to economic growth are slightly tilted to the upside.ECB Executive Board member Schnabel: Given the resilience of the economy, interest rates must be raised further.

Gold Prices Fall to Start a Volatile Pre-Fed Week

Haiden Holmes

Jul 26, 2022 11:13

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Gold's behavior in the last 72 hours before the Federal Reserve's rate decision for July is as expected: unpredictable.


New York's Comex gold futures for August delivery closed $8.30, or 0.5%, down at $1,719.10 per ounce, after a low of $1,712.95 and a high of $1,733.30.


Since last week's first positive finish in six weeks, capital flows into bullion have grown, despite an earlier plunge to 16-month lows below $1,688.


However, not everyone believed that gold was impervious to another slide below $1,700.


Craig Erlam, an analyst at the online trading platform OANDA, said that gold dealers were seeking to determine whether a recovery had begun, adding that 10-year U.S. interest rates were encouragingly below the vital 3 percent level.


"We may have to wait until Wednesday to see which of the two it will be, with the Fed's policies and their potential recessionary effects influencing the outcome," Erlam added.


Since it hit record highs above $2,100 in August 2020, gold has failed to live up to its reputation as a hedge against inflation for the most of the previous two years. The dollar's ascension, which is up 11 percent this year and 6 percent in 2021, has contributed.


Gold for delivery in August on the Comex climbed by 1.4% last week, but only after a five-week fall that cost bulls $172, or 9% of their value.


The Dollar Index, which measures the dollar to six major currencies, fell for the third day in a row on Monday, hovering around 106.5 after hitting a 20-year high of 109.14 on July 14.


As the Federal Reserve prepares to conduct its fourth rate hike of the year, this week volatility may be the name of the game for gold and other commodities. The Federal Open Market Committee's rate decision will be followed by Jerome Powell's press conference, during which traders will attempt to interpret economic signals.


In July, there will be another 75-basis point hike, just as there was in June, according to over 80 percent of analysts. If so, rates would reach a range of 2.25 to 2.50 percent by the end of this month, up from a range of 0 to 0.25 percent before February's increases.


The Fed's officials anticipate that rates will reach a peak of 3.5% or maybe 4% by the end of the year, with three more rate decisions to be made this year.


However, traders in the money market are also pricing in rate cuts by 2023 if the adverse economic implications of Fed rate hikes prove to be too severe. This followed a week in which wagers hit 70 percent, culminating in a record 100 basis point rise in July.


The fact that the market is even contemplating a fall in interest rates by next year suggests to experts that the likelihood of a Fed-induced recession happening between now and then is rather high.


In the first quarter, the U.S. economy contracted by 1.6%, and a negative second quarter is all that is necessary to formally declare a recession. On Thursday, a day following the Fed's rate decision, the first GDP data for the second quarter will be revealed.

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