Gold Erases EU Losses Ahead of Fed

June 15th, 2016 by

gold-nugget-dollarGold prices are trading slightly lower than Tuesday’s close, as markets prepare for this afternoon’s Federal Reserve policy statement. While no one expects a hike in benchmark interest rates today, traders are starving for hints on the Fed’s near-term policy plans.  Gold is looking to extend a five-day win streak against the power of Janet Yellen to move markets.

August gold futures edged up $1.20 an ounce to settle at $1288.10 Tuesday. Brexit pressures on the pound saw gold prices in London jump to nearly a three-year high of £913.09 an ounce yesterday. The pound hit an eight-week low Tuesday. Spot gold ended with a $1.70 gain, to close at $1285.50 an ounce. This was the middle of Tuesday’s trading range.

Today’s technical numbers have support at $1280, then $1276. Resistance is showing up at $1286, then $1290.

Stocks opened higher after four straight days of losses, on news that producer prices edged up due to higher oil prices. The index gained 0.4% in May, compared to 0.2% in April. The year-to-year numbers slipped into negative territory, however, posting a drop of 0.1%.

Downbeat sentiment was reinforced by reports that industrial production dropped more than expected in May, due to falling auto production. Factory output was down 0.4%. Traders expected a much smaller 0.1% drop. April factory output was revised down slightly, to +0.2% from +0.3%.

West Texas Intermediate crude futures were down 1.5% in early trading this morning, while Brent futures were down over 2%. This is a rare divergence from recent days, where oil has led stocks around by the nose. Oil prices are being hurt by expectations of weaker demand from Europe in the event of a Brexit, and reports from the American Petroleum Institute that US crude stockpiles gained 1.2 million barrels.

oil marketOil recovered losses when the US Energy Information Agency reported that, instead of a 1.2 million barrel build, US oil stockpiles fell by 933,000 barrels. Oil traders still viewed this morning’s report as half a loaf, since they were expecting a drop of 2.33 million barrels. Oil has been in trending lower since Friday, when Baker Hughes reported that the number of US oil rigs increased slightly for the second week in a row.

In a blow to Beijing, MSCI once again refused to add Chinese stocks to its influential Emerging Markets index. Worries still persist on the ability of investors to move money in and out of China’s stock market, as well as incomplete reform by Beijing of its capital markets.

The Fed’s policy meeting may have stolen the spotlight for today, but Brexit still trumps Yellen in the eyes of the market, at least until the June 23 referendum vote. The yield on the German 10-yer bond actually fell into negative territory today, fetching a -0.033%. People are paying the German government to borrow their money for ten years.

Expect volatile market action this afternoon at the conclusion of the Fed’s Open Market Committee meeting. Recent reactions have initially been in one direction, but then reverse on nuances of the report.


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