The Merriam-Webster dictionary defines emotion as “an attitude, idea, or judgment motivated by feeling: inclination: definite view or idea: opinion: affection: sublime feeling: particularly sensitive sensitivity as expressed in a work of art: sentimental idealism.”
In relation to financial markets, market sentiment is the view or attitude that creates our opinion about whether an asset class is overvalued or undervalued. It shapes and changes the value of the stock or commodity price.
Market sentiment is very sensitive to statements and comments from Fed officials because these individuals have the power and influence to change monetary policy. There is a big difference between the perception of upcoming changes in the Fed’s monetary policy and the actions of Fed officials.
The Fed raised rates at every FOMC meeting this year except January, from March to November, a total of six rate hikes. During the last four FOMC meetings (June, July, September and November) they have raised interest rates by 75 basis points. The aggressive nature of the Federal Reserve’s monetary policy caused gold to drop significantly from March through the beginning of November. Gold traded to its highest value this year at $2,078 in March. With the beginning of November, gold prices fell to approximately $1,621, which led to a price drop of 21.99%.
During the first week of November, market sentiment changed because inflation rates had partially declined and investors took this partial decline as a signal that the Federal Reserve would start easing its aggressive monetary policy. This caused gold to rise significantly from $1,621 to an intraday high of $1,792 by Tuesday, November 15th. Because the CPI fell from 8.2% yoy in September to 7.7% yoy in October, investors believe that the Fed will become more pessimistic about the next rate hike.
However, Federal Reserve Governor Christopher Waller said at a conference in Sydney, Australia on Sunday, November 13, “We’re not relaxing… stop paying attention to the pace and start paying attention to the endpoint. Until we get inflation down, it’s still the endpoint.” This is a way out.” On November 14, several Fed officials made comments to the contrary.
San Francisco Federal Reserve President Mary Daley, “It’s far from triumphant.” Last week’s report is a “welcome source of relief,” said Lori Logan, president of the Dallas central bank at the Federal Reserve, but it won’t mitigate the need for more rate increases perhaps at a slower pace.
The data made over the weekend and on Monday, November 14th, dramatically changed the market sentiment regarding gold prices. Gold prices hit intraday highs above $1,790 the next day, and then started falling for three consecutive price days from Wednesday to Friday. To add fuel to the fire today, St. Louis Federal Reserve President James Bullard said the Fed’s policy reference right could need to be as high as 7%.
The data moved gold prices from Tuesday’s high to its current price. As of 4:27 PM EST, the most active December futures contract is currently set at $1,751.30 after factoring in today’s net decline of $11.60. The data is likely to continue to create a bearish sentiment in the market towards gold.
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