SGOL - Gold: Time To Load Up The Van

2023-09-24 06:22:44 ET

Summary

• The Federal Reserve keeps its key interest rate unchanged, signaling moderation in its stance against inflation.
• Inflation pressures have eased, but consumer inflation remains above the Fed's 2% target.
• The Fed expects to raise rates once more this year and maintain high rates well into 2024, with fewer cuts than previously expected.

Fundamentals:

The Federal Reserve has kept its key interest rate unchanged , a sign of moderation in its stance against inflation as inflation pressures have eased. Consumer inflation has reduced to 3.7%, but it remains above the Fed's 2% target. The Federal Reserve expects to raise rates once more this year, anticipating maintaining high rates well into 2024, with fewer cuts than previously expected.

Inflation concerns still linger, with the Fed targeting a soft landing of the economy to avoid a deep recession, ensuring that inflation moves closer to their 2% target while managing resilient job markets and economic growth. The economy is foreseen to grow by 2.1% this year, a revision from the 1% forecast in June. Despite these advancements, the costs of some services continue to rise.

Gas prices and oil prices are on the rise, impacting consumer spending, with some factors threatening to reignite inflation. There are risks associated with raising interest rates too high, and hence the Fed's approach is reflective of a more balanced awareness of economic risks. Central banks globally are mostly adjusting rates to combat inflation, which spiked due to disruptions in global supply chains and geopolitical events like Russia's invasion of Ukraine.

Interest Rates Unchanged:

When the Federal Reserve keeps interest rates unchanged, it can have varying impacts on gold and stocks, depending on investor expectations, prevailing economic conditions, and market sentiment.

Gold:

1. Value Preservation: Gold is often seen as a hedge against inflation. When interest rates are low or unchanged, and inflation is high, investors might turn to gold and preserve value, potentially driving up gold prices.
2. Opportunity Cost: When interest rates are unchanged and remain low, the opportunity cost of holding non-yielding assets like gold decreases, possibly making gold more attractive to investors.
3. Currency Value: Low or unchanged interest rates tend to weaken the domestic currency, making dollar-denominated assets like gold cheaper for foreign buyers, which could drive up demand and prices.

Stocks:

1. Cost of Capital: Unchanged and lower interest rates reduce the cost of capital for companies, which can lead to increased business investments and potentially higher stock prices.
2. Discounted Cash Flow Valuation: Stocks are often valued using discounted cash flow models. Lower interest rates reduce the discount rate applied to future cash flows, potentially leading to higher stock valuations.
3. Consumer Spending: When interest rates are low, consumer spending is generally higher, which can lead to increased corporate profits and potentially higher stock prices.

Context-Specific Impact:

Given the context of the Federal Reserve keeping interest rates unchanged amid high inflation, the reaction of gold and stocks will depend on investor interpretation of the Fed's decision. If investors see the unchanged rate as a sign that the Fed is not doing enough to combat inflation, gold prices may rise due to its status as an inflation hedge. Simultaneously, stocks may experience increased volatility due to concerns about prolonged high inflation affecting corporate profits.

However, if the market perceives the unchanged interest rate as supportive of economic growth without exacerbating inflation, stocks might react positively due to the prospect of continued economic expansion and corporate profitability, while gold might not experience significant gains due to a reduced need for inflation hedging.

To be able to better identify the standard deviation levels in gold, let's take a look at the weekly standard deviation report for next week published in the Market Place section as Mean Reversion Trading and see where we can identify some short-term trading opportunities. We trade, coach and teach this information in our Live Trading room daily.

Gold: Weekly Standard Deviation Report

Sep. 23, 2023 2:07 PM ET

Summary

• Gold futures market shows bullish trend momentum, closing above the 9-day SMA at 1945.
• The market closed below the VC Weekly Price Momentum Indicator at 1949, indicating bearish price momentum.
• Proposed short position profit range: 1930 - 1913, proposed long position profit range: 1966 - 1985.

Executive Summary:

The weekly trend analysis of the gold futures market indicates a bullish momentum, with the contract closing at 1946, surpassing the 9-day SMA at 1945. Despite this, the market closed below the VC Weekly Price Momentum Indicator at 1949, suggesting bearish price momentum. The ensuing report provides a detailed analysis of the market trends and proposes a strategic approach for both short and long positions.

Weekly Trend Momentum:

The gold futures contract concluded the week at a closing price of 1946, denoting a positive trend above the 9-day Simple Moving Average ((SMA)) of 1945. This closing position serves as confirmation that the weekly trend momentum is fundamentally bullish. However, any close above the 9-day SMA would effectively alter the bullish short-term trend to a neutral stance.

Weekly Price Momentum:

Despite the observed bullish trend momentum, the market manifested a closing below the VC Weekly Price Momentum Indicator (VC PMI) at 1949. This scenario confirms the prevailing bearish price momentum for the week. Consequently, a close above the VC PMI would counteract the established weekly bearish short-term trend, rendering it neutral.

Cycle Analysis:

The next anticipated cycle is due on September 30, 2023. It is imperative to consider this date in any future strategic market analysis and planning.

Weekly Price Indicator:

Proposed Strategy:

• For Short Positions: It is advisable to take profits within the 1930 - 1913 range.
• For Long Positions: Consider taking profits within the 1966 - 1985 range.

Conclusion:

The weekly analysis portrays a nuanced market scenario with bullish trend momentum and bearish price momentum. A vigilant approach is necessary, considering the closing positions relative to the 9-day SMA and the VC PMI, to adapt strategies efficiently in response to evolving market conditions. It is crucial to implement the proposed strategies meticulously and remain cognizant of the forthcoming market cycle on September 30, 2023.

Recommendations:

• Monitor the market closely for any changes in trend and price momentum.
• Execute trades in alignment with the outlined strategies, considering the identified profit-taking ranges.
• Stay abreast of market developments and adjust strategies as necessary in anticipation of the next cycle due date on September 30, 20.

For further details see: