Gold price waits for rates clues from Jackson Hole

Why gold prices have failed to take flight

21 September

Gold prices started the week with a modest fall in a muted Asian trading session. The dip reflects the relatively weak bounce that gold has enjoyed since the US Federal Reserve voted to leave interest rates unchanged last week.

The precious metal had been struggling amid speculation that rates might be lifted, a decision that would have hit non-yielding commodities. Prices have now risen from the near multiyear lows that were reached earlier this summer to a three-week high of $1,141 an ounce on Friday, according to the Financial Express. But this remains well short of the summer high of $1,170 with prices dipping back to $1,137 overnight.

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According to the Wall Street Journal, the small bounce that came about as a result of the Fed's decision, combined with an increase in Indian demand for physical gold ahead of the country's religious festivals, could boost gold to a new "support level" of $1,150. Rains that have hit farm incomes could curtail this somewhat, however, while some analysts see a fundamental case for the rally being "short-lived".

In a recent Reuters poll, most analysts said they reckoned rates would rise before the end of the year, meaning traders are remaining relatively bearish on commodities and precious metals in particular. The Financial Express notes that hedge funds cut their net long positions on gold – a bet on longer-term price rises – to a five-week low last week.

Inflation, against which gold is traditionally seen as a hedge, is barely registering and the key emerging markets for gold such as China are expected to see a major slowdown in growth over the coming months. This was one feature of the commentary accompanying the Fed decision that has shocked markets and is currently pushing investors out of equities and commodities and into the safe haven of US Treasury bonds.

Gold price lifts on Fed hold - but not much

18 September

Gold prices enjoyed an expected bounce on Thursday as the Federal Reserve decided to hold interest rates, the gains were limited as worries over the global economy and uncertainty over eventual timing of a rates rise undermined the rally.

The precious metal hit an intraday high of $1,133 on the Comex division of the New York Stock Exchange, the Wall Street Journal reports. "Gold would benefit from any delay in raising US interest rates," the paper explains, as the non-yielding commodity "would struggle to draw investors away from Treasury bonds when rates climb".

It adds higher rates "would also boost the dollar, which would make dollar-denominated gold more expensive for buyers".

So the rise was inevitable, but it was also less than stellar and eventually, notes Reuters, the rally ran out of steam and prices even dipped slightly in Asian trading overnight.

This reflected ongoing uncertainty over when rates will eventually rise after the Fed's commentary continued to point to a rise this year but offered an extremely bearish view of the global economy and particularly of the effects of a slowdown in China.

US equities similarly jumped immediately after the announcement and then closed in the red.

Some traders also pointed out that a negative view on major growth economies such as China would hurt gold, as demand in these markets is key to future buying trends. Atul Lele, chief investment officer at Deltec International Group, told the Journal that the Fed commentary "gives us greater confidence in our negative outlook for gold."

Currently settled at $1,132.70 an ounce, gold remains well below the near-$1,170 high it reached in August.

It may benefit from a fall in the dollar and equities in the coming days, but if speculation on a rate rise continues to dominate discussion in the coming months, in the lead up to Fed meetings in October and December, prices are likely to come under further negative pressure.

Gold price rallies - and it could move higher

17 September

Gold recorded its biggest one-day rise in around a month on Wednesday, as new inflation data prompted a big bet on the Federal Reserve holding interest rates and held the US dollar in check.

If the decision goes as most investors – and now even a slim majority of economists in most surveys – expect and borrowing costs are not hiked this month, these trends should continue. It will then be a case of how long the rally can last and how high prices can go.

The precious metal rose to $1,119 on the Comex division of the New York Stock exchange, a 1.5 per cent rise that Market Watch notes marks the most significant advance in close to a month to the highest settlement this week.

But gold is still trading below the $1,120 level at which it spent most of last week, and well below a recent high close to $1,170 in August.

"The prospect of a Fed rate hike is still very low, so things are reacting the way you'd expect them to react if there’s no hike," Dave Meger, director of metals trading at High Ridge Futures in Chicago, told the Wall Street Journal.

He pointed to data published yesterday showing a surprise fall in inflation, which adds to the case against a rise, saying: "We know that inflation is one of the main focal points for the Fed."

Assuming the Fed does hold, Matt Weller, senior market analyst at Forex.com, told Market Watch gold prices should continue higher in the coming days - but he described the likely increase as "short-term".

This echoes the sentiment of Linn & Associates broker Ira Epstein, who told the Journal yesterday that a rate rise is still likely either in October or December, which will act as a drag on any rally.

"If the Fed leaves rates unchanged, the upside for gold prices would be limited," explains India's Economic Times, "as the move would create more uncertainty over the timing of an eventual rate hike."

Gold price: heading for six-year low, or support hardening?

16 September

Gold dipped again on Wednesday, marking its 12th decline in the past 15 trading days, as the US dollar continued to advance and equities optimists came to the fore amid apparent ‘Fed fatigue’ ahead of a crucial rates decision this week.

The metal slipped below $1,102 an ounce on the Comex division of the New York Stock Exchange and continues to drift lower and towards support levels that have been holding prices steady in recent weeks.

This coincided with a two per cent rise in the dollar index, which tracks the greenback against other currencies, the Financial Times reports.

Traders and analysts are confounded by current trends in some areas, the paper adds, as "equities suddenly burst into life at the same time as bond prices fell sharply", and the dollar rose despite US Treasury bond yields, which it typically tracks, falling.

"One explanation… is Fed fatigue": investors have had enough of "the endless debate about a 25 basis point move in rates" that will not change the fact that a rise is inevitable soon, but that a return to normal rates will happen very slowly.

Treasury yields hit a four-year high this week and Tuesday's fall is considered a technical facet of thinner market trading and a jump in rival German bunds.

Equities are responding to economic strong fundamentals. Gold is negatively correlated to both – and will in any case most likely fall relative to income-paying assets when interest rates do rise.

All of this means gold will fall further, Ira Epstein, a broker with Linn & Associates in Chicago, told the Wall Street Journal. He said: “Be it September, October or December, the gold market is realizing that the Fed rate increase is coming and that will mean a higher dollar.

“I think gold is starting to say that the next move is going to challenge the current lows at $1,070, and we might go to $1,050 and then $1,000." Gold prices haven’t been below $1,000 since October 2009

But James Stanley writes in DailyFX that continued support around $1,100 could be indicative of a "lower high" for the metal that will protect it in the coming weeks, especially if the Fed holds.

Coupled with uncertainty in China that should add to the allure of gold, a traditional safe haven, this could point to at least a modest recovery, some say.

Gold price rally on Fed hold 'would be short lived'

15 September

Gold prices are continuing to drift lower - but within a very narrow range - as traders wait on the sidelines ahead of a keenly-watched Federal Reserve rates meeting this week.

The precious metal dipped to below $1,108 in Asia overnight, the Wall Street Journal reports, marginally lower than the finish in the previous session but still lingering around the $1,110 level at which it has found limited support in recent days.

The precious metal is unlikely to "make any significant gains until the meeting, when the possible timing of an increase in US interest rates may become clearer".

Many economists are still predicting rates will be increased for the first time in nine years at the meeting, at odds with a clear majority of investors betting on fund futures.

Non-yielding gold would suffer from the combined effect of losing its appeal relative to income-paying assets and from a likely rise in the dollar, against which it is often used as a hedge.

This would imply that the metal may rise, along with other commodities, should the Fed heed the advice of the International Monetary Fund among others and hold fire.

David Govett at brokers Marex Spectron told Bullion Vault his "personal opinion… is that the Fed will not raise rates and [so] Thursday night should see a rally in precious prices".

But with a rise in US rates looming even it does not happen this month – most investors still expect a hike before the end of this year – how prolonged will a rally be for gold, which has fallen significantly throughout 2015 in anticipation of fiscal tightening?

"If the Fed doesn't raise this month, they will emphasise that the raise is not far off", Govett adds, so "the rally will probably be short lived".

Gold price: all eyes on Fed as 'test' of lows predicted

14 September

Gold could "re-test" is current low price support level and head towards five-year lows reached earlier this summer, as attention turns to a crucial meeting of US central bank rate setters this week.

The precious metal dipped below the psychologically important threshold of $1,100 an ounce on the New York Comex exchange on Friday, The Bullion Desk says, before recovering to around $1,107. It edged up again in Asia overnight to settle at a $1,109, with traders predicting the near-term trend will depend heavily on the Federal Reserve's rates decision.

A move to increase rates will put fresh downward pressure on commodities and especially gold, which does not pay an income and so would look increasingly unattractive compared to other assets. The gold price also moves in the opposite direction from that of the US dollar, which should rise when rates are increased.

If, however, rates are held again, what will happen to gold will be determined by how the Fed reached its decision and whether it signals that the postponement is short-term. A more "dovish" stance, pointing to a later rise, could trigger a rally, though this will itself "depend how equity and currency markets also react to the Fed's decisions", HSBC's James Steel told Reuters.

Overall, traders remain bearish on gold, which as an inflation-hedge is struggling at a time of price stagnation. Hedge funds and other institutional investors have cut their 'long' positions to a three-week low and increased their 'short' positions, effectively banking on the price falling.

Reuters technical analyst Wang Tao said before the Fed meeting the price would "re-test" the $1,099 level, at which it has found support recently, and there is "a good chance of breaking below this level". The next support to be found would come in at $1,089.

Gold closed at a five-and-a-half year low of $1,084 in July.