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Gold has shed most of its gains for the year in February, as some have begun to speculate that the Fed could return to 50 basis point (bps) rate hikes after cutting their most recent hike to 25bps. Larger hikes and the potential for a higher peak rate would likely bolster the Dollar and dull the appeal of gold in the near term. 

Though the minutes from the most recent FOMC meeting note that a few policymakers may have been able to support a larger hike, they unanimously chose 25bps when it came time to vote. Moreover, Fed Funds futures markets continue to imply a 73% probability for another 25bps hike at the March 22 meeting. Price growth has continued to decelerate gradually and, if that trend remains intact, the Fed’s statements and projection materials seem to suggest a more conservative path toward their desired peak rate in pursuit of a “soft landing”.

Related ETF: SPDR Gold Shares (GLD)

Gold prices are experiencing their first real pullback of 2023, largely due to sudden expectations that the Fed may revamp the hawkishness of their monetary tightening regime. This trend has recently bolstered the Dollar and sent gold tumbling from 10-month highs around $1950/oz at the start of February to under $1830/oz this morning, a decline of roughly -6.2%. Gold has been bolstered this year by expectations that the Fed was nearing the end of its tightening cycle and becoming less hawkish, which does still seem to be the case, despite the recent bearish shift by traders.

While it does seem likely that rates will reach a higher peak than previously anticipated, the idea that there is widespread support among policymakers to return to 50bps point hikes, up from just 25bps last month, has yet to be substantiated. The release of minutes from the January 31 – February 1 FOMC meeting yesterday showed a unanimous vote for a rate hike of 25bps, while only “a few officials” favored or could have supported a half-point hike. It’s important to note, however, that the Fed did not vote on a 50bps hike, so it is difficult to gauge any real amount of support for a larger hike.

Even some of the more hawkish members of the Fed, who have publicly acknowledged they remain open to hikes beyond 25bps, are not necessarily pushing for a higher peak rate than what is already being priced in by fed funds futures for the rest of the year. Rather, they…

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