Capital Futures: Interest rate hike expectations continue to suppress gold and silver.

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The core factor driving continued pressure on gold prices is the market’s steadily intensifying expectations of the Federal Reserve raising interest rates. Traders in the federal funds rate market are increasing their wagers, believing the Fed could begin hiking as early as July—an unprecedented move that the market is now taking seriously. Although the probability of a rate hike at next month’s policy meeting remains relatively low, interest rate swap pricing shows the probability of a 25-basis-point increase at about 36%, which is a significant rise from earlier, when it was nearly zero before newly appointed Fed Chair Walsh shifted the policy focus to maintaining price stability. Since the June 17 policy meeting, open interest in August federal funds rate futures has risen rapidly; the fast accumulation of new positions has overall leaned toward the sell side, indicating that traders are betting the probability of a rate hike will continue to increase. The likelihood that the Fed will keep interest rates high for an extended period has increased, and the medium-term outlook remains bearish, with attention on Walsh’s remarks at the annual meeting of global central banks. (Capital Futures)
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