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: 'safe haven' busted by commodities rout

29 September

Equities are in sharp reverse in yet another knock to investor confidence. And gold, once seen as a safe haven, is no exception to this downward slide. "This is when you know it's bad,” says Business Insider‘s Myles Udland.

In truth, gold was not expected to rise substantially any time soon, given the widespread belief that a rates rise might be looming. But gold was expected to hold steady in a narrow range while wider markets swung wildly. Instead the precious metal slumped by around $20 on Monday to $1,127 an ounce. 

Part of the reason, Bloomberg notes, is that another rate setter, New York Fed President William C Dudley, is taking the same line as Federal Reserve chairman Janet Yellen. He says that there‘s a strong case for a rates rise before the end of the year. This would hurt non-yielding gold and speculation that a rise may happen has caused the metal to slump by three per cent this year.

But gold is also caught in a broader commodities rout. "Concern about a slowdown in China has hit the mining sector hard, with demand slowing just as years of investment in new production brings a glut of supply on to world markets,” says the Financial Times. All metals are falling ­– copper for example is close to its "lowest levels since the financial crisis” – and mining equities are in free fall.

The outlook for the wider commodities sector is unlikely to change substantially any time soon, with a potential Fed rates rise remaining top of the agenda. While a modest rally cannot be ruled out, this could continue to undermine support for gold for some time to come. 

Gold price range-bound amid Fed obsession

28 September

Gold fell again in Asian trading today, marking the second consecutive negative session in the wake of a hawkish turn from the US central bank.

The precious metal had recorded modest rises through the early part of last week after the decision by the Federal Reserve to hold rates again. Gold is negatively correlated to interest rate moves, which boost the value of income-generating assets relative to non-yielding commodities and also boost the dollar, against which gold is traditionally used as a hedge.

But all that changed after a speech on Thursday evening by the Federal Reserve chairman Janet Yellen in which she sought to pull back on the explicitly dovish tone of the rates call after a torrid few sessions for equities. Yellen stated categorically that a rates rise this year remains the plan. Gold immediately dipped slightly from its one-month high of above $1,150 an ounce.

On Friday, revised data was published showing the US economy grew at a faster-than-thought 3.9 per cent in the second quarter, adding to the case for a hike. In Asian trading today, the first session after the figures were published, gold fell again to $1,142. It is currently in the red again in Europe at $1,138.

Traders generally do not foresee a price collapse over the coming days. With the next Fed call not due until the end of October and most expecting a 2015 rise to come in December, the focus will be on economic data such as the keenly-watched nonfarm payroll report that's due on Friday. Until then, gold should remain in a fairly narrow range at the lower end of its recent levels.

"Interest around $1,141 should continue to support gold over the short-term, while $1,155 will provide resistance," MKS Group trader Sam Laughlin told Reuters.

Gold price: another month high, now set to tumble?

25 September

Gold has not quite hit the highs some might have expected in the wake of the surprisingly dovish rates call by the Federal Reserve last week – and even after a brief surge on Thursday some reckon the metal is already primed for another slide.

Reuters reports that gold fell back below $1,150 an ounce in Asian trading overnight, a significant drop from the one-month high of $1,156 it reached on Thursday. That peak came after new consumer sales figures seemed to confirm the more bearish view of the economy set out by Fed rate setters when they voted to hold interest rates at their September meeting.

However, sentiment shifted back after Fed chair Janet Yellen reaffirmed it was still on track to hike rates before the end of this year in a speech yesterday evening. The Financial Times says she outlined a "prudent strategy" of an initial raise this year and gradual tightening thereafter – and warned that holding rates too low for too long "could encourage excessive leverage and other forms of inappropriate risk-taking".

Gold is negatively correlated to interest rates, as a rise tends to boost returns from income generating assets and thus hits non-yielding commodities.

DailyFX notes that the strong rally on Thursday had set a "higher low" for the precious metal and on one view could see it push on to challenge its summer high of $1,170, but that in general "the 'big picture' down trend in gold is still very much intact". Traders adding to negative price bets could suggest price targets of $1,126 and then below $1,100.

Mining.com adds that there is already evidence of this, citing regulatory filings showing 'short positions' – bets on lower prices – are now back within shouting distance of 10 million ounces (283 tonnes), while bullish bets – a gamble on higher prices – have been reduced to five-year lows.

Gold price hit by rates anxiety and stronger dollar

23 September

A stronger dollar and anxiety over interest rates weighed down gold prices yesterday, according to the Wall Street Journal.

Gold for December delivery, the most actively traded contract, ended down 0.7% at $1,124.80 a troy ounce in New York.

Many analysts were already convinced that the commodity's short-lived rally in response to the Federal Reserve's decision to hold rates was at an end before yesterday's development. Now, with several Fed officials signalling that they would still like to raise interest rates later this year, it is hard to disagree.

"Investors don't want to fight the Fed and they are keeping gold off the radar," says George Gero, senior vice president at RBC Capital Market Global Futures.

Raised interest rates make gold less attractive compared with interest-bearing securities, but two other factors should also be taken into account. The stronger dollar, a bearish signal for gold which is traded in the US currency, is influencing the slump, while weakness in the Chinese economy has also led to a waning demand for gold.

So what next? Looking ahead, DailyFX says that current momentum signals point to a "further downside" for gold, which has given back half of the gains from the Fed announcement.

The metal has had a volatile summer, swinging between a six-year low of $1,080 an ounce and a high in August of $1,170. Longer-term predictions are almost entirely gloomy.

Gold price: is the post-Fed rally already over?

22 September

Gold is not riding high on the back of the Federal Reserve's decision to hold interest rates. In fact, after a dip on Monday, some analysts are suggesting a short-lived rally may already be at an end.

Having swung this summer between a six-year low of $1,080 an ounce and a high in August of $1,170, before becoming rooted at around $1,100 ahead of the Fed's long-awaited decision last week, gold did enjoy an expected bounce after rate setters held fire on Thursday and hit a three week high of $1,142.

But yesterday the precious metal fell back in London trading, notes Bullion Vault, shedding $10 an ounce. The Wall Street Journal reports  that it gained a bit of ground overnight in Asia to settle at $1,134 – and it has since inched up to $1,135 – but it would certainly appear that the commodity is encountering a selling resistance that is preventing the rally from pushing on.

Gold's Monday decline came as global equities rebounded following their own sharp fall in the previous session – and the subsequent recovery has coincided with risk assets falling back again. With little clarity on when rates might move, and the Fed's bearish analysis leaving investor confidence brittle, undulation of this nature might persist in the coming days.

The longer-term trend, however, remains negative for gold, says the commodity trading veteran Dan Norcini of the Market Oracle. Despite claims that physical gold stocks are at record lows and are certain to eventually push up prices, Norcini says that if gold fails to break through its current ceiling of around $1,140 and the dollar continues to stabilise, prices will be pressed lower.

"Maybe that will change and the market will finally start a trend higher, but it has an awful lot of work to do on the technical price charts before one can say with any objectivity that the worst is over for gold," he says.

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