charting gold price

Gold Caught in Rate Hike Limbo

October 22nd, 2015 by

Charting-Gold-MarketEven though spot gold opened slightly lower in New York for the second consecutive trading day, there is roughly equal sentiment on both sides of the trade right now. Thanks to the never-ending uncertainty about when (and at this point if) the Federal Reserve will raise interest rates, the near-term outlook for the gold price remains as mixed as it’s been all year.

Moreover, in the face of the dollar jumping 1% against a basket of its peer currencies this morning (notably the euro), the gold price still turned into positive territory by about 10 am EST this morning. The yellow metal moved about 0.2% into the green (+$2.50) to trade back above the $1,170 per ounce mark.

The drag on gold—in addition to the stronger dollar—by selling pressure likely followed the metal falling through support at $1,179/oz earlier in the week. Such movement would be driven by speculation and profit-taking, as cashing out makes sense for short-term speculators after the gold price posted gains for six consecutive days. Even after cooling off from recent highs, gold is still up more than 5% just in the time since the Federal Reserve chose not to raise interest rates at its September meeting.

Playing Rate Hike Limbo

rate-hike-DOAFor the first time in perhaps as long as 2 or 3 years, the fundamentals for the gold price are, for the most part, equally stacked on both sides of the argument. The metal is caught in the slump for commodities, but gains some luster in light of the sluggish global economy; it is somewhat less attractive in the short-term if interest rates indeed go up, but it strengthens in the immediate with each successive balk from the Fed on raising rates; it is seen by many as a safe haven amid the massive money-printing policies of central banks, but hasn’t served this role as well as expected due to chronically low inflation.

Basically every direction you look, cases can be made on both sides of the gold trade. The long-term narrative for gold functioning as a store of value, however, remains decidedly unchanged.

Visual Capitalist even developed a great infographic showing the uncertain trajectory of the gold price lately and looking forward.

Fresh Gold Entering the Market?

Source: BullionStreet.com

Source: BullionStreet.com

In related news about gold, the debt-stricken nation of Venezuela may be forced to dump some 2.6 million troy oz of its gold onto the market in order to service its debts. That’s roughly equivalent to $3 billion at current price levels, a much-needed boost for a country that has at least $5 billion in imminently maturing debt to worry about. The news follows Venezuela’s swap earlier this spring where it traded Citigroup 1.4 million ounces of its gold for about $1 billion in cash. Former president Hugo Chavez had 180 tonnes of the country’s gold repatriated from vaults in London a few years ago, meaning that Caraças has about 360 tonnes of physical gold on reserve. The main problem is that getting another party to take that bullion as collateral is a tall order due to the cumbersome process of auditing or transporting the gold held in the Venezuelan capital.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.