Gold Fundamental Forecast – June 2016

Gold saw major declines this month after the FOMC turned hawkish and the US dollar rallied. Gold closed out a hectic month at 1216.75 after falling below $1200 for a short period. Gold is down 6.19% on the month but remains in the green on an annual basis trading up 14.76 YTD.

Precious metals remain in correction mode, there is some dip buying around, but follow through buying is absent, palladium is the one attempting to rebound the most but it is a thin market. For now, all but all remain vulnerable, but we expect dips to attract pent-up demand.

A report by Tim Fox says that as markets hunker down for summer and think increasingly about Brexit risks, they appear to have taken their eye off the ball when it comes to the Federal Reserve. After having more or less written off the possibility of a June Fed rate hike during the spring, the markets were shocked to see the minutes of last month’s Federal Open Market Committee meeting showing members actively considering a June move. We always thought that such a move was quite likely, but the markets will now be scrambling to catch up and re-calibrate tightening expectations through the rest of the year.

The Fed Funds futures market now gives a 32 per cent probability to a June rate hike compared to 12 per cent before the release of the minutes, and in the coming weeks it seems likely that these odds could go higher still.

The minutes of the April FOMC noted that participants judged that if the data on growth, inflation and employment continued to make progress towards the Fed’s objectives, then it “would be appropriate for the committee to increase the target range for the federal funds rate in June”. Some participants were also reported to have judged it appropriate to raise interest rates at the meeting, as downside risks associated with global economic and financial developments had, at that point, diminished.

Since last month’s meeting, momentum in the US economy has clearly improved, with data for retail sales, consumer confidence, industrial production and consumer prices surprising relatively positively. So much so that estimates for second-quarter growth have been raised from 2 per cent closer to 3 per cent, something that should prove reassuring to Fed officials.

FxEmpire provides in-depth analysis for each currency and commodity we review. Fundamental analysis is provided in three components. We provide a detailed monthly analysis and forecast at the beginning of each month. Then we provide more recent analysis and information in our weekly reports and we provide daily updates and outlooks.

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