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FOMC And USD To Dominate Gold Market Next Week -- Analysts

3/13/2015

Next week all eyes will be on the Federal Reserve and analysts are expecting gold to suffer on the back of a stronger U.S. dollar as the central bank prepares for an eventual rate hike.

Comex April gold futures closed Friday just two dollars in positive territory, narrowly capping a nine-day losing streak. Gold still ended the week in negative territory, settling the session at $1,152.40 an ounce, down 1.47% from Monday.

Comex May silver also barely held on to its positive gains ending the session at $15.494 an ounce. Silver underperformed gold on a weekly basis, dropping 2.74% from Monday.

Analysts have noted that gold and silver have struggled all week as investor and traders piled in the U.S. dollar, driving it to a 12-year high. They add that the trend does not look like it will end soon.

The key event for financial markets next week will be the Federal Open Market Committee meeting, which will release its monetary policy statement Wednesday.

Economists and analysts will be combing through the statement to see if the Fed will remove the word “patient.” Some economists have explained that this change could signal the central bank is preparing to hike rates in June but others aren’t convinced.

“The removal of “patient” in March will not necessarily imply that the Committee is likely to hike in June. Rather, it will be a signal that the Committee expects to seriously consider the option at the June meeting,” said economists at Nomura,” “We continue to believe that the first rate hike is most likely to come in September.”

Economists from CIBC said they are expecting the Fed to be “two-handed” in that they will change the statement but not necessary signal that interest rates will start to rise in June. They note that central bank will be reluctant to pull the trigger on higher rates as the data has been fairly “bipolar.”

Gold To React To FOMC

Edward Meir, commodity consultant with INTL FCStone, said that the first rate hike, which he is expecting to come in June, should mark the end of the U.S. dollar rally. He added that should provide some much needed momentum for the yellow metal.

“I think the Fed needs to move sooner rather than later,” he said. “Until we get over that first rate hike, gold doesn’t look so good.”

In the near-term Meir said that he is expecting gold prices to test initial support at $1,140 and added that he wouldn’t rule out a drop to $1,130, the November 2014 low – which some analysts have dubbed the “line in the sand.”

“Right now there is no bullish narrative for gold,” he said. “I think we need some sort of global economic shock or credit event to create some momentum for gold.”


Ronald-Peter Stoeferle, fund manager at Incrementum AG and author of the In Gold We Trust report, is not so convinced that the Fed will be so eager to change the wording in its statement because the economic data at best has been mixed.

However, the eventual rise in interest rates will cap any rally in gold next week, he said. Stoeferle remains bearish on gold in the near-term as speculators continue to exit their positions and have a negative opinion on the precious metals space.

“I don’t see a major risk of a covering rally at the moment,” he said. “We are still far from seeing a buy signal in the commitment of traders report.”

Until global inflation pressures start to pick up, Stoeferle said that gold won’t look like an attractive investment.

With gold prices remaining at December lows, Asian demand will continue to be monitored next week to see if it will provide any support.

So far most analysts describe physical demand out of China and India as “not bad,” which is a stark contrast to the marketplace in 2013 and 2014.

Victor Thianpiriya, commodity strategist at ANZ bank said that although gold futures are hold around $1,150 an ounce, he is expecting that level to break and eventual fall to $1,100 an ounce.

“I think we are destined to go lower,” he said. “It’s certainly going to be a bumpy ride, and the 1150 level is putting up some resistance right now but I think it breaks.”

However he added that this break followed by a consolidation period might convince Asian investors to move off the sidelines.

“I think gold’s failure to hold the gains in the early part of the year – the price was $1,300 an ounce just 2 months ago – has dented confidence in the short term,” he said.

Although the FOMC meeting will garner most of the market’s attention, other economic reports that could be market moving include regional manufacturing to be released Monday and Thursday as well as some housing data at the start of the week.

http://www.forbes.com/sites/kitconews/2015/03/12/gold-ends-near-steady-as-sellers-kept-in-check-by-weaker-u-s-dollar/