Gold: Another year of Fed watching on tap

24 December, 2015

The traditional wisdom is that gold tends to fall when interest rates rise because higher interest rates tend to boost the US dollar (in which gold is denominated) and increase the appeal of alternative investments such as bonds. One week after the Federal Reserve embarked on its first rate hike cycle in nearly decade though, gold is not stubbornly refusing to follow the script.

The yellow metal did fall in the immediate aftermath of last week’s “hawkish hike” from the Fed, but the commodity managed to hold above its previous six-year low at 1050 before bouncing back on Friday. As of writing, gold is trading back around 1070, but the question now is where it goes next.

In the short-term, strong resistance still looms in the 1080-1100 corridor, where previous support levels have now turned into resistance and the declining 50-day MA comes in. Therefore, we wouldn’t be surprised if the metal simply consolidates in the 1050-1100 zone through the low liquidity holiday period.

On a longer-term basis, gold’s path will likely still depend on Federal Reserve policy: if the US central bank is able to raise interest rates in 2016 as aggressively as its most recent projections suggest (a total of four hikes next year, or one every other meeting), the opportunity cost of owning gold and likely strength in the dollar could easily push gold below 1000 or even 900.

On the other hand, many analysts project that the Federal Reserve will have to tap the brakes on its normalization schedule in response to weak global growth. If fears about low inflation or stalling economic growth only allow the Fed to raise interest rates once or twice in 2016, gold could be one of the biggest beneficiaries. In this case, bulls would want to see gold break back above 1100 early in the year, followed by an eventual move above previous resistance around 1090, which would break the string of lower lows and lower highs that has been in force since the 2011 peak above 1900.

One way or another, it looks like gold traders will be in for another year of scrutinizing central bank speak and constantly revising their projected path of interest rates in the US and abroad.  


Source link  
Markets turn focus towards Trump address to Congress

On the evening of Tuesday, February 28th, US President Trump is slated to give a major address to a joint session of Congress in lieu of the usual State of the Union address...

FOMC meeting minutes signal rate hike fairly soon – dollar unimpressed

The minutes from the most recent FOMC meeting three weeks ago – the first such meeting since Donald Trump’s presidential inauguration – were released on Wednesday afternoon...

Crude oil look set to resume bullish trend

Oil prices have been coiling for several weeks now with both contracts spending most of their time in a tight four dollar range...


US stocks could rise 6-7% further before potential crash

The US stock markets hit repeated new record highs last week. The positive sentiment has continued at the start of this week, with Asian and European markets drifting higher in an otherwise quiet day. US index futures point to further gains at the open later on...

Fed gives little indication of interest rate trajectory

The Federal Open Market Committee (FOMC) meeting has come and gone, and little has changed in the financial markets as a direct consequence. In unanimously deciding to keep interest rates unchanged, as widely expected...

Surging equities at risk ahead of earnings season

While earnings season has started on a very positive footing, however, banks and other financial companies were already expected to shine more than others due to rising interest rate expectations. As non-financial companies begin to report in the coming weeks...


Gold rebound heading for major resistance

For more than two weeks, the price of gold has been in a strong rebound from its late-December bottom around the $1125 level. This rebound follows a sustained drop in price that began from the July highs around $1375 and followed-through to the December lows...

Crude oil at higher plateau ahead of US inventory data

Crude oil prices have recently been lifted to year-to-date highs on a successful agreement to cut oil production and control supply among major OPEC and non-OPEC oil producers...

Gold rebounds off key level ahead of busy week

As we reported the possibility on Friday of last week, gold did indeed fall further lower this week. The rising dollar, yields and US equity prices all weighed on the appeal of the buck-denominated, noninterest-bearing and perceived safe-haven precious metal...

  


Share: