In Depth

Gold price waits for rates clues from Jackson Hole

Political turmoil in the US has the potential to 'help gold in the short and longer term'

Gold price plunges below $1,140 after Fed rates surprise

15 December

Gold plunged in afternoon trading in New York yesterday, after the Federal Reserve caught traders off guard with its latest interest rates decision.

The US policymakers voted unanimously to increase base interest rates by 0.25 per cent, to a between 0.5 and 0.75 per cent - the first rates hike this year and only the second in the past decade.

It was a widely expected move, with traders putting the chances of an increase at 100 per cent immediately before the announcement, based on market bets via federal fund futures, Bloomberg reports. 

But "it was the Fed's more hawkish stance regarding rate hikes next year that surprised the market," says Investing.com.

The policymakers now forecast they will vote to increase interest rates three times next year, up from the two predicted in September and a sign of confidence in the US economy.

The news brought spot gold, which had been around $1,164 an ounce, plunging to a ten-month low of $1,141 by the end of US trading. It dipped to below $1,138 an ounce this morning.

According to The Guardian, Fed chairwoman Janet Yellen told reporters: "It's important for households and businesses to understand that my colleagues and I have judged the course of the US economy to be strong.

"We have a strong labour market and we have a resilient economy."

Stephen Innes, a senior trader at Oanda in Singapore, said in a note that "this is flat out hawkish", adding: "The market had expected at most a subtle shift in Fed language."

Yellen also said the US economy had added 2.25 million jobs in the past year and that the Fed now sees growth next year of 2.1 per cent, up from a previous forecast of 1.9 per cent.

Analysts speculate the prospect of "Trumpflation" - a surge in inflation following a promised burst of spending by president-elect Donald Trump - could also be prompting the bank to pre-emptively increase interest rates.

While this boosted the dollar to a 14-year high, commodities such as gold and oil, which are priced in dollars, fell.

Rising rates tend to make gold less attractive relative to income-yielding peers. It is also more generally negatively correlated to the US dollar.

Gold price down ahead of Fed rates call

13 December

The gold price was down in London trading today, hovering below $1,160 an ounce and near a nine-month low ahead of a meeting of the US Federal Reserve starting today.

Policy-makers will decide on Wednesday evening whether to increase interest rates, with the consensus being they will hike them for the first time this year.

 

Rising rates are generally bad for gold as they increase the opportunity cost of holding the non-yielding metal versus other income-generating assets.

 

They also tend to galvanise the already-strong dollar, against which gold is often held as a hedge.

 

The Wall Street Journal reports that an increase has been widely expected since the market bounce following the election of Donald Trump and amid hawkish comments from rate-setters in recent weeks.

 

Many analysts think "that a rate hike [is] already priced into the market".

 

That would suggest a rise would not push gold much lower than its current level and opens the possibility for gold to surge should the Fed not increase them.

 

On the other hand, Nitesh Shah, a commodities strategist at ETF Securities in London, said investors will "look ahead to clues on the timing of future rate hikes in 2017".

 

The Fed will publish a "dot plot" of rate-setters' forecasts in the coming 12 months. If this suggests the pace of increase could pick up with several rises next year, gold could fall sharply.

 

Gold price 'will slide to $1,100 in 2017'

1 December

Gold endured a fresh bout of selling overnight and in the process clocked up its worst month for three years.

Prices at the end of the New York trading session, the last of November, were down 1.4 per cent, leaving the metal down eight per cent for the month as a whole – its worst performance since June 2013.

Mining.com says gold has "now trimmed its year to date gains to 9.8 per cent".

Initial fears over the impact of a Donald Trump presidency on the global economy have given way to speculation on the inflationary effects of his investment plan, boosting the dollar and bringing pressure on gold.

Interest rates could rise to counter a surge in inflation, which would hurt the non-yielding metal. Traders give a 99 per cent chance of a rise being announced at this month's Federal Reserve meeting, says the Wall Street Journal.

Prices were still tumbling in Asia this morning, hitting $1,163 an ounce and the lowest level since the beginning of February. Gold had recovered only slightly to $1,168 in London by mid-morning.

The latest move lower came after another surge in the dollar, which reached nine and a half-month highs against the Japanese yen after the Opec deal to cut supply lifted oil prices and added to the sense that inflation is set to soar, says Reuters.

Gold is treated as a pseudo-currency and a hedge against the dollar, so the two tend to move in opposite directions.

"From an investor point of view there is little reason to hold gold," said Georgette Boele, a currency and commodity strategist at ABN Amro.

Technical analysts believe having broken below $1,170, gold could now test the next "resistance" level at $1,150 an ounce. ABN Amro predicts the price will fall to $1,100 next year.

One issue on the horizon that could turn the selling tide is the Italian constitutional referendum this weekend. A No vote rejecting a series of changes to the political system is expected to bring down Mario Renzi's government and trigger renewed global uncertainty.

Uncertainty tends to push investors to safe havens such as gold, so the metal could see a short-term bounce.

Gold price nears ten-month low and could fall to $1,150

24 November

The gold price closed in on its lowest level for ten months yesterday, hitting a nadir of $1,180 before recovering slightly.

Having fallen in excess of ten per cent from a brief post-US presidential election high of $1,337, the precious metal remains under pressure ahead of an expected increase in US interest rates next month.

New figures show spending by US companies grew 4.8 per cent last month, its biggest gain in a year. Coupled with recent strong labour reports and positive rhetoric from policymakers, this has convinced traders borrowing costs will rise in December, with market bets putting the likelihood near 100 per cent.

Looking into next year, markets are booming on the back of speculation that a spending splurge by incoming president Donald Trump will fuel a rapid rise in inflation, while the dollar is at a 14-year high.

A spike in inflation would hurt non-yielding gold if it triggers even more rapid rate rises. The boost in the dollar is biting now as gold is often held as a hedge against the US currency.

Trading today has been thin and US markets are on holiday, leaving the gold price standing at $1,185 an ounce. So where does it go from here?

DailyFX is still pointing to a technical marker of around $1,171 an ounce and says if this is breached, the price may "target" the next foothold lower, at $1,152.

If the market rebounds, however, and gold moves back above $1,200, traders should look for resistance at another technical indicator around $1,234 an ounce.

Gold price is 'getting slammed' below $1,200

23 November

The gold price is "getting slammed" on a stronger dollar and ever-greater certainty that the US Federal Reserve will increase interest rates next month, says Business Insider.

Gold was holding within its narrow range above $1,210 an ounce after Asian trading this morning, but it has since plummeted by more than $25 to around $1,185.

This is the first fall below the important $1,200 threshold since February and marks a sharp 11 per cent reversal from a peak of $1,337 an ounce in the wake of Donald Trump's US presidential election triumph earlier this month.

Uncertainty over the incoming president's economic agenda was expected to propel the metal on, perhaps to $1,500. However, it has confounded analysts by slumping while equity markets soar to new record highs.

It's not just a risk-on move that is hurting the "safe haven": a pledged $1trn (£800bn) infrastructure spending boost could send inflation soaring, prompting an interest rate rises in response.

The Fed is expected to hike rates for the second time in a year next month following more strong economic data showing US companies are continuing to increase spending.

Gold tends to do badly when interest rates are rising because, as it does not provide any income, it carries a high opportunity cost. Rising inflation and rates expectations are also boosting the dollar, against which the metal is held as a hedge.

Prices could fall further from here, with analysts having previously highlighted a technical resistance level around $1,170 as a target.Nevertheless, Robin Bhar, the head of metals research at Societe Generale in London, said there was a chance gold might bounce back in a "sell the rumour, buy the fact" rally if the Fed does act next month.

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