Shorts are being covered this morning in New York, with gold prices up over $13 an ounce to break above the persistent recent resistance at $1,179. The 200-day moving average (200DMA) of $1,176 is firmly in gold’s rear-view mirror.
Will The Fed Go It Alone?
Short covering was triggered by a moderate gold rally overnight, on news that Sweden’s central bank has expanded its quantitative easing program. The Fed is the world’s only central bank even contemplating tightening monetary policy, and this latest news from Europe is thought to be another blow against a Fed rate hike before next year.
This morning’s gold rally is another sign that markets are betting that a December rate hike is not in the cards, much less a rate hike today. Bloomberg quotes a panel of “superforecasters” predicting a rate hike “after January,” i.e. March at the earliest. However, a rate hike before Christmas might be in the cards if the Fed takes to heart the rising criticism that it has severely damaged its credibility by “talking the talk” but not “walking the walk.”
In any case, expect the usual volatility and whipsawing in all markets in the immediate aftermath of today’s FOMC statement, as HFT computers react within a second to keywords in the statement, and later human analysts parse the intent behind the words.
Will This Gold Rally Have Legs?
Despite some ECB officials trying to talk back expectations of further easing/stimulus by Europe’s central bank, market analysts see the ECB has being forced by slowing economies and disinflation to expand its quantitative easing. Add the stock market crashes and heavy-handed economic intervention in China boosting gold demand, plus more analysts predicting that any negative effect a Fed rate hike will have on gold will be temporary, and the seeds for a bullish correction may have already been planted.
Swiss megabank UBS today told investors that it sees any rate hike-related dips in gold as a buying opportunity, noting gold’s attractiveness as a hedge against the tail risks of lower real interest rates and macro uncertainty in the markets.
GFMS analysts report a surge in gold demand for the third quarter, with investor demand for gold coins and gold bars jumping by 26%
In the short term, every rumor that a Fed rate hike is being pushed back, leads to the US dollar being pushed down. This causes an increase in the gold price, which is denominated in dollars for international trade. The expected dovish Fed statement today is already being partially anticipated by today’s robust rally, but expect wild gyrations in the hour or two immediately after the statement’s release at 2pm.
Geopolitics Take A Back Seat
Neither news that the US is conducting special operations raids and hostage rescue missions against ISIS, or news of China’s anger over a US destroyer passing near their artificial islands in the South China Sea has had an apparent effect on gold. Economics, specifically the Fed, are trumping geopolitical considerations.
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.