The weekly range contained a high and a low, but gold futures closed today above Monday’s open. The question is whether this week’s fractional gains can be characterized as a key reversal (a pivot from bearish to bullish market sentiment) or simply a bullish rebound, followed by increased selling pressure.

The rise of the US dollar and US debt is largely based on the belief that the Federal Reserve will begin to unwind (reduce) its monthly asset purchases of $ 120 billion “soon.” Another factor on the radar of the investment community is the potential crisis that would arise if Congress and the Senate could not pass legislation to raise the debt ceiling by October 18.

Yesterday the House and Senate approved an interim measure to fund the government until December. Yet they have not proposed any legislation to remedy the current debt limit, which would prevent the United States from making payments on its debt. Although there have been government shutdowns in the past, the United States has always paid interest on the national debt.

Yesterday, Treasury Secretary Janet Yellen and Fed Chairman Jerome Powell testified before the House Financial Services Committee. As we discussed in our opening letter yesterday, during Secretary Yellen’s testimony, she made a dire prediction if the United States could not honor its debts. This will only happen if Washington is unable to pass legislation to raise the debt ceiling. According to the Secretary of the Treasury, the government would not be able to meet its financial obligations if, by October 18, no laws were passed to raise the debt ceiling, which is currently capped at 28.4 trillion. dollars.

The future direction of gold will be largely based on the future monetary policy of the Federal Reserve. The Fed invoked an extremely accommodative policy after the pandemic began in 2020, leading to a deep global recession. As the economic recovery in the United States strengthens, the Federal Reserve will begin to unwind the dramatic steps it has taken to temper the recession and aid economic recovery. At some point, most likely next year, the Fed will start to normalize the interest rates it raised to ¼%. The recent interest rate projection released by the Federal Reserve at this month’s FOMC meetings suggested that this normalization process of dropping interest rates from near zero to 3% would be implemented over the course of the next three years. The Federal Reserve’s statement and Jerome Powell’s press conference also revealed that they will begin the process of reducing their asset purchases as early as November of this year. Analysts and investors still do not know the pace of the phase-down process, although it is believed that they would reduce their purchase of US debt instruments and mortgage-backed securities with monthly cuts, which would take about a year until the reduction does not translate into more assets. purchases.

Finally, the Bureau of Economic Analysis today released PCE figures for August. The report found that inflation continues to rise, with figures for August showing that the PCE price index rose 0.4%, excluding food and energy.

The report made the following statements; Personal income rose $ 35.5 billion (0.2%) in August, according to estimates released today by the Bureau of Economic Analysis. Personal disposable income (DPI) increased by $ 18.9 billion (0.1%) and personal consumption expenditure (PCE) increased by $ 130.5 billion (0.8%). Real DPI declined 0.3% in August and real PCE rose 0.4%, concluding that the PCE price index rose 4.3% from a year ago.

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Wishing you, as always, good exchanges and good health,

Gary Wagner