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Gold Reversed Gains After Positive US Data

By:
Barry Norman

Traders remain on edge ahead of Janet Yellen’s speech at Harvard this afternoon. Analysts are saying it might be what she doesn’t say that could be more

Gold Pulls Back as a Coup attempt Failed in Turkey

Traders remain on edge ahead of Janet Yellen’s speech at Harvard this afternoon. Analysts are saying it might be what she doesn’t say that could be more important than what she does say. Thursday saw a long list of positive data from the US, with weekly unemployment reporting lower than expected while durable goods reported higher than expected with an upward revision to last month’s data. Even pending home sales soared. Gold traded higher most of the day but finally reversed gains to close down $4 at 1219.65. Silver once again diverged from gold to trade up a few points at 16.35. Platinum was flat at 993.95. To raise or not to raise, that’s the dilemma that the Federal Reserve thrust upon the financial markets last week.. Gold fell again in the Asian session as traders sold off ahead of Janet Yellen’s speech falling over $7 to dip to 1213.30 but it is expected to recover back to the 1220 price as the European markets open.

gold chart

Her silence could be telling, however. The assumption among Fed observers is that Yellen is supportive of talk by her colleagues of an impending rate hike. The bank could lift rates as early as June, though most forecasters believe July is more likely.

The Fed chairwoman on Friday is slated to receive the Radcliffe Medal, an award given each year to people who have had a “transformative impact on society.” She’ll also be interviewed by Greg Mankiw, the noted Harvard professor and one-time White House adviser of President George W. Bush.

On May 18, the Fed hinted strongly that only the second rate hike of the eight-year Obama Administration will come on June 15.

Current expectations are that the U.S. central bank will enact its second post-Great Recession rate hike not at the June Federal Open Market Committee meeting, after which there is a news conference, but rather July, where is no scheduled session between Chair Janet Yellen and the press.

If nothing else, such a move would strike a blow against conventional wisdom.

“We think the obvious solution is for the Fed — assuming the data does firm by the time of the June meeting — to use June to set the stage for a July hike,” Evercore ISI economists Krishna Guha and Ernie Tedeschi said in a note to clients that stated the rate rise would be “conditional on the Brexit risk event passing without major dislocations and the US data continuing broadly in the same channel consistent with ongoing progress on employment and inflation.”

gold platinum

 

Fed has been promising to raise interest rate year-to-date, but has not done it any single time. The Fed is in a very difficult position. Rising interest rate might cause immediate recession due to lack of liquidity. On the other hand, as they promised to raise interest rates, they must sooner or later fulfill the promise. Otherwise, market will continue to lose confidence in the Fed. But if they lift rate now and recession starts immediately, they will be forced to put rate down again. This might damage Fed’s credibility even more.

Market participants expect the US dollar gold price to head lower over the next week, with signals from the US Federal Reserve on a possible rate hike and speculative unwinding the likely key drivers, the S&P Global Platts Gold Sentiment Survey indicated this week.

Physical gold flows continue to be diverted to London, with demand in the world’s number one and two physical consumers, China and India respectively, reported very weak, a theme throughout 2016 so far, sources said this week.

gold sector

Flows to London vaults would suggest Exchange Traded Fund activity, with the international price this year supported largely by investor interest both in Europe and the US. Platts has previously reported that 2016 has so far been the worst year in memory for demand to India.

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