Has the gold price digested another US rates rise?

(October 13, 2016 - by The Week)

Metal remains firm overnight despite Federal Reserve minutes pointing to December increase.

As expected, minutes from the US Federal Reserve’s September meeting reinforced expectations of an increase in interest rates before the end of the year.

However, this did not have the forecasted effect of dragging the gold price significantly lower.

The precious metal doesn’t pay income and tends to suffer at times when interest rates are rising. Increasing borrowing costs also usually boost the dollar, against which gold is held as a hedge.

Experts had predicted the Fed minutes to send gold back to its four-month low of last Friday, when it hit around $1,241 an ounce.

Instead, the price held firm in the mid $1,250s - and rose slightly in Asian trading this morning to a high of $1,261. It was still hovering around that level in London this afternoon.

Reuters says the relative strength owed much to weak equities, which were taking a lead from weak trade data coming out of China that "stoked concerns about the health of the world’s number two economy".

OCBC Bank analyst Barnabas Gan added that the fact gold held despite the rates speculation "strongly suggests that gold prices… have already digested the probability of a rates hike around this year".

In the minutes, Fed rate-setters said action to tighten policy would be justified "relatively soon", says the Wall Street Journal. Several said the September decision was a "close call".

"The minutes didn’t say when the next rate increase might come, but they largely reinforced market and analyst expectations of a Fed move in December, after the US presidential election," the paper adds.

Gold price ’uptrend is over’, says ABN Amro

The gold price "uptrend is over", Dutch bank ABN Amro analyst Georgette Boele has said in a note to clients, reports BullionVault.

Mounting speculation that the US Federal Reserve will increase interest rates again before the end of the year is weighing on sentiment towards the metal and Boele says a host of technical indicators suggest its 2016 rally has run out of steam.

Rising interest rates are bad news for non-yielding gold, as this boosts the

attraction of alternative, income-paying assets. It also tends to help the dollar, against which gold is held as a hedge.

In particular, Boele pointed to the fact gold is currently trading below its 200-day rolling average. ABN Amro has revised down its end-year forecast to $1,200 an ounce, "with a further fall to $1,150 in 2017 now forecast for 2017".

The gold price traded slightly higher on Monday, but it is stuck in a narrow range around $1,255 that Reuters analyst Wang Tao says shows its rebound from a four-month low last week has "completed".

Tao said the market is now looking ahead to the minutes of the most recent Federal Reserve meeting this evening, with expected indications that rates will go up again before the end of the year expected to push gold below Friday’s $1,241 an ounce.

"Very dull markets in precious at the moment," said David Govett, of brokers Marex Spectron. "I suspect the minutes will just reinforce the probability of a December rise [and we] may see some pressure… later".

Julius Baer analysts agreed. "The drying up of safe-haven demand, the risk of profit-taking and the outlook for a stronger US dollar suggest further pressure on prices," they said, Reuters reports.

However, they add that the US presidential election next month represents a "wild card" that could send gold higher before the end of the year.

The analysts are basing their central estimates around a Hillary Clinton victory, but said the "uncertainty that comes with a [Donald] Trump presidency" would likely be "bullish" for safe-haven assets such as gold.

Gold price endures wild swings after US jobs ’miss’

10 October

Gold prices surged more than $17 an ounce in a matter of minutes on Friday, after a keenly awaited US jobs report came in below expectations.

However, it was not able to hold those gains and finished the New York trading session down at a new four-month low, says Mining.com.

Gold’s volatility has continued today, after it rose markedly overnight in Asia and pared those gains to a modest increase of around 0.5 per cent this morning.

Prices before the US jobs report were languishing at a little above $1,250 an ounce. That jumped to an intraday high of around $1,267 once traders saw the numbers, which revealed an estimated 156,000 jobs being created last week, well below the expected 175,000. 

Weaker economic data makes it less likely the US Federal Reserve will increase interest rates before the end of the year, which would be positive for non-yielding assets such as gold.

However, despite edging higher, unemployment was still around the assumed "full employment" level of five per cent. Hours worked and average wage growth also improved so there was enough to strengthen "the hawks on the Federal Reserve’s decision making committee who want to raise rates sooner rather than later this year", says Mining.com.

Gold price slumped back below where it started as the figures were digested. Reuters says it touched an intraday low of $1,241 at one point before recovering.

Overall, the mixed report gives little clue on the rates trend. In focus instead this morning is the return of buyers in China after a holiday break, which has sent the gold price to $1,262 an ounce.

"Spot gold may break a resistance at $1,266 per ounce and edge up to the next resistance at $1,276 before resuming its downtrend," said Reuters technical analyst Wang Tao.