Gold ramped higher after the North American close today at the same time that the crude oil price fell in a heap. The moves come after the Federal Open Market Committee (FOMC) raised its target rate by 25 basis points to 5-5.25% yesterday. The US Dollar ended weaker against all G-10 currencies on Wednesday, potentially underpinning the yellow metal. The commodity-linked currencies of AUD, CAD and NZD have started Thursday on the backfoot which may reflect the pop in volatility in gold, oil and other commodities.
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The front futures contract for gold on COMEX touched US$ 2,085.4 an ounce today. That’s the highest level since the all-time high in August 2020 of US$ 2089.2. Although it eclipsed the March 2022 high of US$ 2,078.8, a Triple Top is now in play unless a new high is made. A Triple Top is an extension of a Double Top. COMEX gold futures priced in NYMEX WTI crude oil bbl futures are trading at their highest level since February 2021. After the Thursday opening flurry, both gold and oil retreated back to near levels of where they closed on Wednesday as markets recalibrate after the Fed hike. Interest rate markets appear to be calling the Fed’s bluff with cuts being priced in as early as the third quarter. The market appears to have placed a significant emphasis on the pivot in some of the language. The March meeting statement read, “The Committee anticipates that some additional policy firming may be appropriate,” before going on to cite factors that will be weighed in decision-making. The May meeting statement changed this passage to, “In determining the extent to which additional policy firming may be appropriate.” This seems to have been the trigger for the market to see no more hikes and anticipate cuts ahead. In the post-match presser, Fed Chair Jerome Powell emphasized that this is not necessarily the case. He noted several times that each decision going forward will be data-dependent on a meeting-by-meeting basis requiring ongoing assessment. Nonetheless, Treasury yields went lower again with the 2-year bond touching 3.81%, notably below last month’s peak of 4.29%. Real yields continue to languish with the 10-year rate near 1.15%, down from the high of 1.38% seen on Monday. The real yield is the nominal yield less the market-priced inflation rate derived from Treasury inflation-protected securities (TIPS) for the same tenor. Not surprisingly, gold volatility ticked higher in the hectic price action. The GVZ index measures gold volatility in a similar way that the VIX index measure volatility on the S&P 500. GOLD PRICED IN USD AND OIL, US 10-YEAR REAL YIELD, GOLD VOLATILITY