Gold price is well supported with a shrinking calendar forcing Fed rate cuts – Tastylive’s

(Kitco News) – The gold market is seeing some solid selling pressure Tuesday following hotter-than-expected inflation numbers; however, this correction could be a short-lived buying opportunity for investors who missed the initial rally, according to one market strategist.

Although rising consumer prices pose a risk for the Federal Reserve, the latest economic data is having only a modest impact on interest rate expectations. Markets still see a more than 60% chance of a rate cut in June and this will continue to support higher gold prices, said Christopher Vecchio, head of futures strategies and forex at Tastylive.com, in a recent interview with Kitco News.

Vecchio’s bullish outlook on gold comes as the precious metal drops from last week’s high above $2,200 an ounce. April gold futures last traded at $2,160.70 an ounce.

Although gold has room to fall further, Vecchio said that it’s difficult to be bearish on gold. He pointed out that gold remains a solid safe-haven asset as equities continued to trade in overextended territory. He added that the precious metal remains well supported in an environment of heightened geopolitical turmoil and economic uncertainty.

He also said that gold is well supported as the Federal Reserve looks to start its expected easing cycle sooner rather than later.

“Gold seems to be moving in anticipation of the fact that we’re going to be having lower rates at some point, and more importantly, it’s a fantastic asset to have if the federal reserve breaks something as they typically do at the end of a rate hike cycle,” he said. “The trajectory of interest rates is lower, moving forward. And that was a key takeaway from Powell’s remarks to Congress. It doesn’t matter if the first cut comes in May or June; they are coming.”

Vecchio said that he expects June will be the likely start of the new easing cycle as the Federal Reserve is running out of runway before the November 2024 elections.

“After June, the calendar gets really short really quickly,” he said.

After the June 12 meeting, the Federal Reserve will make its next monetary policy decision on July 31 and the following one on September 18. Vecchio pointed out that the July meeting would be too close to the central bank’s Jackson Hole retreat, and the September meeting is too close to the November election.

The November decision comes after the election, but it doesn’t give the central bank any flexibility if they need to act aggressively to support any potential weakness in the economy.

“If the Fed doesn’t cut rates in the first half of this year, they only really have three meetings during the rest of the year to deliver on those three cuts,” he said.

As to how to play gold, Vecchio said that he expects dips will be bought through the rest of the year. He added that he has no particular target for the precious metal as it trades in blue-sky territory.

“I don’t think anyone should assign any particular upside target to this. The charts are clearly pointing higher. As a general rule, if things are moving from the bottom left to the top right of your screen, don’t try to be a hero and call the top,” he said. “Right now, the trend for gold is up, and until that stops, I have no reason to think that this is a good place to short. If there’s a dip, buy the dip.”