Managing Expectations

The year ahead will be volatile and, at times, quite frustrating for the precious metals. Already in the first two weeks, we've seen some significant down days as well as one very nice up day. Expect this type of trading to continue as January grinds toward February.

As the year begins, there's really only one variable in play for COMEX gold. Namely, what is the likelihood that the Fed will cut the fed funds rate at the FOMC meeting in March? That March meeting is still eight weeks away, so it would seem to be somewhat impossible to accurately predict what the Fed will or will not do. But that doesn't keep some of the big investment banks from trying.

Here's JP Morgan stating that the Fed is likely to cut in March and then five more times after that as 2024 progresses: https://www.zerohedge.com/markets/jpm-reports-mediocre-q4-earnings-impresses-stellar-2024-forecast-which-based-6-fed-cuts

But here's Morgan Stanley stating that the Fed will stand pat in March and then hold off on any rate cuts until later in the year: https://www.morganstanley.com/ideas/fed-rate-cuts-2024

Will they cut in March or won't they cut in March? That is the question. And we pointed this out in our 2024 macrocast too. For the first 20% of the new year, whether or not the Fed cuts in March is about the only thing that matters.

Reference to Craig Hemke's recent "macrocast"

Between now and early March, here's what you can expect:

• Every time an economic datapoint exceeds expectations and/or every time a Fed Goon tries to pretend to be hawkish, the bond market will sell off and the dollar index will rally. HFT trading machines will see the higher rates and rising dollar and respond by selling COMEX gold futures.
• Every time an economic datapoint comes in below expectations or on the off chance a blabbing Fed Goon seems dovish, the bond market will rally and the dollar index will sell off. HFT trading machines will see the lower rates and falling dollar and respond by buying COMEX gold futures.

If you'd like to follow along with the daily changes to rate cut expectations, the CME Group offers this handy website. You should bookmark it or save it to your favorites list: https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

Once at that CME site, you'll find their rate cut expectation page. From that page, check how the odds of a rate cut in March have swung in just the first two weeks of January. As the year began, there was an 83.3% chance that the Fed would cut at least once by the conclusion of the FOMC on March 20. The COMEX gold price stood at $2080.

Results of CME Fedwatch tool meeting probabilities for 2024 on January 9

One week later, on January 9, the odds of at least one cut by March had fallen to just 65.7%. The COMEX gold price stood at $2030.

Results of CME Fedwatch tool meeting probabilities for 2024 on January 9

But by Monday the 15th, the odds of at least one rate cut had risen back to 73.3% and the COMEX gold price was back to $2055.

Results of CME Fedwatch tool meeting probabilities for 2024 on January 15

So, anyway, it is what it is. As the year progresses, the dire state of the U.S. economy will become clearer to all of us, the Fed, and those big investment banks. By spring, we'll all have a better handle on just how aggressively the Fed may need to cut rates in 2024. For now, though, we'll just wait and watch, ride out the volatility, and maybe even add some more physical metal on the price dips.