Steady Sailing for Gold Price

October 26th, 2015 by

gold_priceSpot gold opened about $3 per ounce higher at $1,167/oz on Monday morning. The yellow metal looks to break its current 3-day losing streak by closing in positive territory in the last trading day before the FOMC kicks off its two-day October policy meeting.

Gold volatility has been close to 4-week lows leading up to the meeting. Long speculative positions on the metal have risen for 5 straight weeks.

Silver was up 10ยข to cross back above $16/oz, while both of the Platinum Group Metals sank into the red on Monday.

Gold was helped in its modest climb higher by the dollar losing ground, sinking about a third of a percentage point to 96.8 on the DXY index. Stocks were expected to break higher at some point during the trading session, but indices in the U.S. and Europe opened in negative territory.

After a prolonged summer swoon that saw the Dow Jones post its greatest single-day point loss in the history of the index, both the DJIA and the S&P 500 have recovered back to where they started, and are even on the calendar year. The S&P 500 is riding a 6-year streak of yearly gains, and the index has never finished in the green 7 consecutive years.

DJIA 3-month chart. Red line emphasis added. Source: Google Finance

DJIA 3-month chart. Red line emphasis added. Source: Google Finance

Focus: Fed

One of the key factors that will determine where the markets are going is the Federal Reserve. Although there is virtually no expectation for a rate hike at the central bank’s October meeting held this week, there will be a great amount of attention paid to the forward guidance it issues. Traders will listen for clues that the Fed intends to move rates in December (the only FOMC meeting remaining in the calendar year) or hold off until sometime in 2016.

Robust demand for gold and Treasurys in the lead-up to the October meeting indicates that the markets are convinced the Fed won’t be raising rates any time soon.

Source: MarketWatch

Fed Chair Janet Yellen. Source: MarketWatch

According to renowned economist Mohamed El-Erain, there are at least three things that we should expect from the Fed at the conclusion of its October gathering: 1) The various Fed officials will show a more unified front than they have in recent months; 2) The committee will signal that, even though there is little-to-no momentum for a rate hike in October, the December meeting is still a potential opening for the FOMC to raise rates this year; 3) The bigger picture about the duration and pace of rate hikes should be more important than the timing of the first increase.

Savvy market participants will be aware of the Fed’s intention to keep December in play, and probably won’t put a great deal of stock in whatever adamant stance the Fed governors take on this issue. There is also an expectation among some analysts that Q3 GDP data will be disappointing, making it even harder for the Fed to justify raising rates.

A few voices are beginning to suggest that a rate hike would stimulate, rather than stifle, the U.S. economy. This competing view against conventional wisdom demonstrates the amount of uncertainty and confusion surrounding the decision. In the interim, it would appear that the uncertainty is good for gold and the precious metals, for now.

 

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.