Weaker Dollar Boosts Gold Price

April 25th, 2016 by

Gold prices were firmer to kick off the week on Monday. Spot gold traded slightly higher at $1,240/oz while silver, platinum, and palladium were each higher by the same modest proportion, advancing around 0.6% each.

Influence from Outside Markets

oil-and-goldThe main drivers for the precious metals remained stronger oil prices and a weaker U.S. dollar. The DXY dollar index was about 0.33% lower this morning, falling to 94.8. Meantime, both crude oil benchmarks were moderately higher above $43/bbl. Crude has consistently been trading above $40 per barrel but experts are apparently torn over where the commodity is heading. Although supply-and-demand tend to point toward an improvement in the oil market, the behavior of profit-driven traders always comes into play.

Global stock markets were generally in the red on Monday. European indices were all around 0.7% lower, while Wall St opened down by about half as much.

As usual, it all seems to depend on where major central banks steer the values of their currencies.

All Eyes on Fed, BOJ

federal-reserveThis week sees both the Federal Reserve Open Market Committee (FOMC) as well as the Bank of Japan (BOJ) meet to discuss monetary policy. Most indications are that markets will remain a bit subdued until after these meetings take place. The FOMC concludes its two-day gathering on Wednesday. The general consensus is that the Fed won’t be making any policy changes until at least June, while the BOJ continue to indicate that it will pursue more economic accommodation (i.e. QE)—it’s simply a matter of when. A narrow majority of analysts believe the BOJ will expand its easing program on Thursday.

politicianBloomberg reports that Capital Economics commodities economist Simona Gambarini commented, “The Fed may hike potentially in June, but it will depend on the language used in the press conference afterwards—highlighting risks to global growth or hinting they may raise rates sooner rather than later.” In other words, traders will have to rely on parsing vague “language” and Fedspeak to determine what’s next for the global economy. Last time I checked, the word choice of a group of central bankers doesn’t constitute economic activity, but I digress.

If the futile exercise of reading of the tea leaves from the Fed and its counterparts points toward more easing, we will likely see another short-term jump in gold prices. This is the common market response to any signal that interest rates will remain low. However, don’t be surprised if post-Fed gains for gold are quickly taken off the table by profit-taking; during the current period of consolidation, prices will naturally move sideways more than up or down, so traders will take this opportunity to score a quick buck.

We are also seeing demand for Treasurys cooling off a bit as gold is chosen as a superior safe haven amid such low interest rates. The benchmark 10-yr Treasury yield has recovered back to 1.90% from recent lows just above 1.70%.

Technical Perspective

One thing that the experts have right is that market activity continues to be a bit boring. There is still a tight resistance and support channel for gold due to this consolidation pattern. The first support level is seen at $1,230/oz while resistance is likely met right at $1,241/oz.

 

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.