Lower Gold Prices Suggest Traders Anticipating Hawkish Yellen

Gold futures are showing very little movement on Wednesday with most of the major players unwilling to commit to a position until they hear what Fed Chair Jane Yellen has to say on Friday at the Jackson Hole, Wyoming central bankers’ conference.

This week’s lower price action suggests that investors may be hedging their bets for a hawkish tone although an imminent rate hike doesn’t appear to be in the cards. Currently, Fed Funds investors have priced in an 18 percent chance of a September rate hike, a 50% chance of a December rate hike and a 100% chance of a September 2017 rate hike of 25-basis points.

December Comex Gold is currently trading at $1343.50, down $2.60 or -0.21%. Spot Gold is flat at $1337.30 an ounce.

There are some gold traders who believe Yellen’s speech will have a hawkish tone. This is because she may not want to create confusion for investors over hawkish comments from several Fed officials since the release of the Fed’s July minutes on August 17. The minutes showed a split Fed.

Yellen may reiterate what her closest colleague, Fed Vice Chair Stanley Fischer signaled in a speech last weekend that a 2016 rate hike was still under consideration and that measures of employment and productivity in the U.S. economy, were close to meeting the central bank’s goals.

A hawkish Yellen could undermine gold, sending it sharply lower. However, if Yellen fails to set a hawkish tone, gold prices could mount a strong recovery rally.

A September hike will have the most impact on gold prices since it would come as a huge surprise. A rate hike in December would likely be accepted easily by traders, however, gold will still feel pressure.

There is risk involved taking a position ahead of Yellen’s speech since all it is going to take is a couple of major U.S. data misses and all the talk about a rate hike in 2016 will disappear and traders will move on to 2017.

December Comex Silver prices continued to perform better than gold this week as investors tried to establish a new support base after testing a major retracement level at $18.61 earlier in the week. Silver is currently trading at $19.00, down 0.07, or -0.37%.

October Platinum also continued to give back gains and seems the most vulnerable to the downside because of supply concerns. It finished at $1109.50, down $1.80 or -0.16%. September Palladium continued to hold firm near its recent multi-year top, but chart-watchers are also noting its vulnerability. It is currently trading $698.10, down $1.75 or -0.25%.