“Concerns about the continuing rally of the dollar created a few nervousness and triggered selling on Friday, but sentiment has turned more favourable towards gold, as the timing of the Fed rate hike remains uncertain”, Saxo Bank senior manager Ole Hansen said.
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Gold futures topped $1,180 an ounce Wednesday, heading toward their highest level in more than a week ahead of a closely watched decision on interest rates by the Federal Reserve. Consumer spending is sluggish.
“I think it’s important to remember that not having a budget in place would have actually shut down a lot of the agencies that collect the data that the Fed needs, so it may have postponed the Fed for much longer than even December”, said Kohli.
The weakness in oil prices “mostly comes from anticipation of Wednesday’s release of the U.S. crude inventories”, said Daniel Ang, an investment analyst with Phillip Futures in Singapore.
Keeping interest rates low would also likely soften the dollar, which would be good news for dollar-denominated commodities like gold, as it makes them cheaper to buy for those holding stronger currencies.
Janet Yellen, chairman of the U.S. Federal Reserve, speaks at a press conference following a Federal Open Market Committee meeting in Washington March 18, 2015.
The Fed cut rates to a historic low of 0%-0.25% in December 2008 at the height of the financial crisis in an effort to stimulate borrowing and spur economic activity. One of the worst FOMC mistakes was tightening rates in 1994, when the probability of a rate hike wasn’t priced in, which sparked a serious bond market crash. “Chances are we’ll be lower for longer, well into next year”.
Since then, however, the Labor Department announced the second straight month of disappointing payroll gains in September and revised down its already modest total for August. Uncertainty was too high, Fed officials decided, for a rate hike in September.
Since then, the outlook has dimmed further with a hiring slowdown and tepid retail sales and factory output. After a dovish Fed statement in September, and weak employment reports, virtually no one is betting that the Fed will raise rates in October.
Both Feroli and Mericle say the Fed is likely to add an upbeat note, acknowledging that broader measures of labor market health – such as the number of part-time workers who prefer full-time jobs – have continued to improve. Any way you slice it, we’re in a bear market for gold right now.
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In an industry report on Tuesday, GFMS analysts at Thomson Reuters said gold is set to remain under pressure until there is more clarity on USA rates.
