Gold Holds Steady as Traders await BoJ & FOMC Next Week

With the twin bill of the BoJ and the FOMC on Wednesday, markets are expected to remain fairly dormant until each bank makes their individual decisions and comments. The BoJ will report its decision early in the Asian session with the Feds following mid-day in the US. Trading may be more subdued ahead of the meeting, which begins next Tuesday and ends next Wednesday afternoon. The markets are putting just slight odds on the prospect of the Fed raising rates at that meeting. The more likely date of a U.S. rate hike would be in December, according to traders and investors.

Global stock markets stabilized on Wednesday following selling pressure seen earlier this week. The recent decline in crude oil prices has helped to weigh on world stock markets. Asian stocks did see modest selling pressure, following the lead of lower closes in the U.S. stock indexes Tuesday. A rise in the Chinese yuan overnight borrowing cost, to above 8%, did cause some anxiety among Asian traders. U.S. stock indexes are pointed toward slightly higher openings when the New York day session begins.

Gold and other precious metals have remained fairly stable through all the other volatility. Gold is trading at 1319.14, well within its trading range of late. Silver is holding at 18.91. The US dollar gave back a bit of its gains after lackluster import and export price index releases disappointed the markets.

In a report analyst at Commerzbank noted that the yellow metal’s lackluster performance comes as investors shy away from bond markets, causing yields to rise, which in turn increases gold’s opportunity costs. Although the Commerzbank analysts remain bullish on gold in the long-term, they added that because of falling bond prices and continued complacency in equity markets “it is probably only a question of time before the gold price tests out and falls below the psychologically important $1,300 per troy ounce mark.

According to Bloomberg, leading the losses among the billionaires is the Oracle of Omaha Warren Buffett who, thanks to his stake in Wells Fargo, lost $1.4 billion Tuesday. The U.S. bank saw significant selling pressure, falling more than 3% Tuesday after it was revealed that bank employees opened up accounts without clients’ permission. Of course, Buffet isn’t alone. Bloomberg noted that according to its index, billionaires lost a total of $37.3 billion yesterday.

Expectations that the US Federal Reserve will raise rates next week have receded, putting pressure on the dollar, which when it falls makes gold cheaper for holders of other currencies. “The big picture is the Fed rate hike, which is going to be the biggest factor for gold, so in the short term markets will be looking at US data,” Natixis lead metals analyst said.

“It’s all about the opportunity cost of holding gold. Higher interest rates make it more expensive to hold gold, which has zero yield.” Markets are pricing in just a 15% chance that US interest rates will be hiked this month, according to CME FedWatch. Many now expect a rise in December after the US presidential election.

Goldman Sachs puts the chances of a rate hike in December at 40%. On the technical front, initial resistance comes in around $1,330, near the 21-day moving average. Goldman Sachs expects the greenback to strengthen by 15 percent based on the firm’s forecast for a three-percentage-point rate increase during a Fed tightening cycle that will continue through 2019, the bank said in a note. A stronger dollar curbs demand for gold as an alternative asset.

Holdings in the world’s largest exchange-traded product backed by gold fell to the lowest since June as investors pulled back before a Federal Reserve meeting next week. Assets in SPDR Gold Shares dropped 0.5 percent on Tuesday to 935.49 metric tons, the lowest since June 24. Holdings have dropped from a three-year high reached in July as comments from some officials fueled speculation that the Fed will tighten U.S. monetary policy this year, making gold less competitive against interest-bearing assets.