Markets have priced in a March hike for some time, which takes the sting out of this form of tightening, and which could create the set-up for a 'sell-the-news' recovery in risk assets.
But, more importantly, participants have begun to question whether the strike on the Fed's put is further from the market, in a regime where the central bank is battling inflation and specifically combating a de-anchoring of inflation expectations. In this context, we think it's unlikely that the Fed will pivot from their plan to start hiking rates as soon as March and start quantitative tightening soon after. However, evidence that quantitative tightening might be more impactful for asset prices suggests that the Fed could still eventually use this policy tool to manage the strike on its put — without necessarily causing undue harm to its primary objective of keeping inflation expectations bounded.
For precious metals, this signals few immediate avenues for relief as the complex struggles to attract capital in the face of a hawkish Fed. The evidence continues to overwhelmingly point to Chinese purchases as the single largest source of inflows in past weeks, which are vulnerable with Lunar New Year around the corner. CTA trend followers are set to liquidate some gold length should prices break below $1810/oz.
©TDS CTA Tracker
The liquidation occurred, then we're now left with very little structure below to bounce from.
Because of that, I am looking to whether the trend followers push for the Sell Stops below $1675 to grab some liquidity and buy into that capitulation
But, more importantly, participants have begun to question whether the strike on the Fed's put is further from the market, in a regime where the central bank is battling inflation and specifically combating a de-anchoring of inflation expectations. In this context, we think it's unlikely that the Fed will pivot from their plan to start hiking rates as soon as March and start quantitative tightening soon after. However, evidence that quantitative tightening might be more impactful for asset prices suggests that the Fed could still eventually use this policy tool to manage the strike on its put — without necessarily causing undue harm to its primary objective of keeping inflation expectations bounded.
For precious metals, this signals few immediate avenues for relief as the complex struggles to attract capital in the face of a hawkish Fed. The evidence continues to overwhelmingly point to Chinese purchases as the single largest source of inflows in past weeks, which are vulnerable with Lunar New Year around the corner. CTA trend followers are set to liquidate some gold length should prices break below $1810/oz.
©TDS CTA Tracker
The liquidation occurred, then we're now left with very little structure below to bounce from.
Because of that, I am looking to whether the trend followers push for the Sell Stops below $1675 to grab some liquidity and buy into that capitulation
