Gold Prices Drop despite Commitment of Traders (COT) Report Shows Little Reaction To Fed Comments

Gold ended the week on a down note after FOMC Fischer put many interest rate options back on the table. Janet Yellen downplayed the possibility of a rate increase as early as September but affirmed that the economy was doing well and a rate increase was warranted. Within hours of her speech Mr. Fisher telegraphed the Fed’s approaches. Gold is trading at 1320 as traders evaluate comments from several Fed members. UK markets are closed for Summer Bank Holiday and in the US traders are preparing for the Labor Day weekend, the last official beach weekend.  Silver is bit more positive trading at 18.54 and platinum is exchanging at 1077.

The Fed chair indicated that the FOMC is moving nearer to raising interest rates again, as well as other members said on Friday in comments that left the door open for a hike as early as next month. Also on Friday FOMC member Fed Governor Jerome Powell told Bloomberg Television that they could afford to be patient and that he wanted to see inflation rise before lifting rates.

“When we see progress toward 2 percent inflation and a tightening in the labor market and growth strong enough to support all that, we should take the opportunity,” Powell said.

Yellen said that the case for a rate increase had grown stronger, while Fed Vice Chair Stanley Fischer suggested a move could come at the central bank’s September policy meeting if the economy was doing well. Data from the US on Friday showed the economy growing only sluggishly in the second quarter, Yellen said a lot of new jobs were being created and economic growth would likely continue at a moderate pace.

Traders are now counting down the days until the Nonfarm payroll report due on Friday as many traders leave on their long holiday weekend. The Fed has policy meetings scheduled in September November, and December. It a year ago from the December meeting that the Fed raised their rates for the first time in many years.

With the US election in full tilt the Fed might just put everything off until after the election cycle leaving December once again the month for the rate increase.

The weekly COT report from the CFTC showed little activity. The report helps see moves by major players in the commodities markets. Gold barely moved a drop last week. Hebba Investments explains that though there is never one report or tool that can give you certainty about where prices are headed in the future, the COT report does allow the small investors a way to see what larger traders are doing and to possibly position their positions accordingly. For example, if there is a large managed money short interest in gold, that is often an indicator that a rally may be coming because the market is overly pessimistic and saturated with shorts – so you may want to take a long position.

In an article by Seeking Alpha they continued to explain that the COT report was little moved for the week though we do note that while speculative investors increased net bullish positions the gold price dropped, which is bearish as it usually rises with speculative net position increases. This suggests there’s a bit of weakness behind the scenes in the physical market and speculative traders are not strong enough to move the price higher.