The Week Ahead In Gold

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Last week, the highly anticipated Federal Reserve symposium from Jackson Hole, Wyoming, drove a large degree of volatility in gold and other markets on Friday. Investors had patiently awaited remarks from Fed Chairwoman Janet Yellen and other Fed officials looking for further clarity on the timing and pace of additional interest rate hikes.

 

Did the Fed deliver?

 

Yes and no…

 

It seems to be apparent that Janet Yellen is signaling another rate hike is on the way, but she provided no specific timetable as to when the next hike may take place.

 

Ms. Yellen stated: “I believe the case for an increase in the federal funds rate has strengthened in recent months.” Ms. Yellen also said that she believes the central bank is close to meeting its targets on full employment and price stability, and she described consumer spending as “solid.”

 

Other Fed officials also chimed in, with Atlanta Fed President Dennis Lockhart stating on Bloomberg television that the central bank could potentially hike rates not once but twice this year.

 

On the other hand, St. Louis Fed President James Bullard is sticking with his forecast of just a single rate hike over the next 2.5 years.

 

The bottom line is the symposium will still leave the topic open for at least some debate. Perhaps this is simply a shot across the bow before the Fed does take action. Or perhaps the central bank is looking to maintain credibility by leaving the door very much wide open for a rate hike this year-or even two.

 

Speculation over the possibility of a September or December hike will likely remain the focal point of investor attention in the coming weeks. Any large data points will be heavily scrutinized, with any significant misses in key data releases possibly giving the Fed more to think about before tightening again.

 

On the flip side, stronger than expected economic data could influence the hawkish camp, and the chances of a hike this year could potentially go up significantly.

 

Stocks sold off a bit in the aftermath, while gold and silver ended the session higher but far from the day’s highs. Treasuries saw some decent selling come into the market, while the dollar index rallied sharply.

 

We believe that the fact that gold and silver did not see heavy selling is a very bullish sign. While the Fed alluded to a hike coming sometime in the near future, investors do not appear to be completely convinced. In addition, the reality is that even if the central bank does raise rates, the pace of any further hikes is likely to be extremely slow and incremental, and we do not foresee rates approaching levels that could dissuade gold buyers.

 

The gold market may face a critical test in the coming sessions. While the market has largely moved sideways for some time now, the bulls need to get some upside momentum going to keep buyers interested. The market remains vulnerable to a larger sell-off if no upside traction is seen, with the $1300 per ounce level potentially providing support.

 

With so many global economic issues still present, and with rates likely to stay low for an extended period of time,  in our opinion any dips in gold may be viewed as long-term buying opportunities. 

The Week Ahead In Gold

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To tighten or not to tighten, that appears to be the question…

 

After a relatively quiet week from a data perspective, investors are left pondering whether or not the Fed will raise interest rates again in September or December. While much of the U.S. economic data has painted a picture of ongoing improvement in activity, there are still several areas of concern both domestic and foreign.

 

The highlight of the past week was undoubtedly Wednesday’s FOMC meeting minutes. The committee elected to hold rates steady-at least for now-and did not give any real concrete idea of when the next hike may take place.

 

The FOMC seemed considerably more upbeat about the economy, and described household spending as “growing strongly,” and referred to the labor market as “strengthening.” The housing sector appears to be viewed as a mild positive, but the factory sector may be characterized as mixed.

 

While expectations for a rate hike at the latest meeting were almost non-existent, odds of a September or December hike have been trending higher. While the Fed does see some significant improvement, it also seems very leery of raising rates prematurely. In fact, it seems as if one or two sharply downbeat economic reports could be the difference maker at this point. Any significant misses could potentially keep the central bank on hold until early 2017.

 

The upcoming trading week will feature some key economic releases, but may be on the quiet side as many investors take last minute vacations before summer’s end. Markets could find themselves simply drifting until more robust trading volumes return.

 

Gold had a tight trading range once again this past week, and was held to a range of just over $20 per ounce. The market could be gearing up for a significant upside breakout or downside breakdown, and the longer prices stay sideways the more significant the move may be. It would seem that many precious metals investors are awaiting more clarity from the Fed before taking a position.

 

The recent dip in gold may be bought again by bargain hunters, and for now the bulls still seem to have the advantage. That could change quickly, however, if the current dip becomes a larger correction. Gold ended last week on a sour note, falling by $11 per ounce as some profit taking likely took place and as sell stops were triggered. The market could find itself on the defensive to begin this week in the absence of any fresh bullish inputs.

 

Gold investors will also continue to watch the dollar index, which has been on its heels lately. The recent slide in the dollar would seem to indicate that many investors do not believe another rate hike will come in 2016, and that even if the Fed did hike, the pace of further hikes is likely to be very slow and incremental.

 

Gold may remain well-supported for the foreseeable future even if the central bank does tighten. Ongoing easing measures in many areas of the world along with the spread of negative interest rates may keep interest in gold strong, and any signs of economic weakness or a top in stocks could fuel a sharp rally in gold from current levels. 

The Week Ahead In Gold

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The gold market was fairly subdued last week, in a trend that could continue for the next couple weeks until summer’s end. Gold spent last week in a little more than a $20 trading range, as low summer trading volumes may cause markets to drift.

 

The gold market remains in an overall positive technical position, although a good test of the market’s mettle could be in store. Some better than expected economic data in recent weeks, including some key jobs data, is fueling further speculation on another 2016 interest rate hike by The Federal Reserve.

 

These changes in interest rate expectations have put a damper on appetite for gold in recent trade, although the market has not seen a decline of any real significance. While a September hike by the Fed is extremely unlikely, Fed Funds futures are pointing to a much better chance now of a December hike. The odds of a December hike could, however, change again dramatically based on the data flow. Like the previous decision to hike rates last December, the decision by the central bank may once again come down to the wire.

 

The gold bears would suggest that such a move by the Fed is bearish for gold; we believe the market is saying otherwise. Gold is not far from recent highs, and the notion of another hike does not appear to be spooking investors. In a world of increasing negative interest rates and ongoing QE, gold may continue to find support from easy money policies that are not likely to go away anytime soon.

 

This week will be relatively light in terms of data, with the latest readings on Housing Starts, CPI, Leading Indicators and more set for release. Of particular interest to investors could be speeches by Dennis Lockhart and James Bullard. Commentary from these two Fed officials could potentially provide further insight into the Fed’s plans at this point.

 

Gold will also likely be driven by action in key outside markets as it awaits further inputs. If stocks continue to make fresh all-time highs, risk aversion is likely to remain benign. The crude oil market could also have an impact this week. Oil has rallied in recent trade on the idea that some measurements could be implemented to stabilize prices. Higher oil could potentially put more wind into the sails of the equity markets as energy companies stand to gain.

 

On the other hand, if oil is left to its own devices, the market is vulnerable to rolling over once again. The world remains awash in crude oil, and the supply glut could drive prices back down below the $40 per barrel level or beyond. Equities have paid very close attention to crude over the last year, and a fresh slide lower in oil prices has the potential to drive selling in equities as risk aversion picks up. Such a scenario could drive buying in gold, silver and other perceived safe havens.

 

We believe the current dip in gold is likely to be bought, although we question the market’s ability to put together any significant rallies on such light trading volumes. Gold may simply be in a holding pattern until more clarity is seen on the timing of the next rate hike by the Fed and more of the potential implications of Brexit are known.

 

The gold bulls may have to act sooner rather than later, however, as the longer the market stays in this tight range the more susceptible it may become to a larger sell off. 

The Week Ahead In Gold

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The gold market wrapped up the trading week with a “thud” as prices got hit hard, declining by over $25 per ounce or nearly two percent. The catalyst for Friday’s selling was the release of the Employment Situation Report for July.

 

According to the U.S. Department of Labor, the country added 255,000 jobs last month while the unemployment rate ticked a hair higher to 4.9 percent. To put this jobs number into context, consensus estimates were looking for an increase of 180,000 jobs.

 

Of particular note, the report showed an uptick in the labor participation rate, which could be indicative of improved overall sentiment among those who are out of work. The report also showed an increase in hourly wages, which rose by $.8 or a 2.6 percent annualized rate.

 

As if that was not enough, revisions for both May and June showed more robust job creation than previously thought. Stock investors clearly felt very encouraged today by the news and bought up equities driving some indices to fresh all-time highs. Interest rates rose as investors sold treasuries, apparently feeling better about the economic outlook and hungrier for risk.

 

Gold and silver, on the other hand, saw some steep declines as risk aversion faded today in light of the jobs data. The question many investors may now be asking themselves is:

 

Will this be another buyable dip in gold or the beginning of a larger move lower?

 

For now, the overall trend in gold still points higher. The next few days may tell us if that trend is set to continue.

 

As has been the case for some time now, positive economic data like what was seen today will likely fuel further speculation of another interest rate hike in September or possibly December. Is it enough to sway the Fed to take action? Probably not. The central bank may want to see additional improvement elsewhere before becoming more aggressive on rates.

 

One could also make the argument that the Fed will avoid being too eager to tighten given the ongoing low rates and QE in other parts of the world. The era of low rates and easing is far from over, in fact, the Bank of England just this week introduced fresh stimulus measures in an attempt to counter the expected negative economic effects of Brexit.

For the time being, gold may find support from the idea of rates remaining at current levels throughout the rest of the year. A good string of more upbeat economic data, however, could potentially drive a shift in sentiment and rate expectations.

 

The week ahead is light from a data standpoint, and markets may simply drift on low summer trading volumes. If stocks continue moving higher, gold may find itself on the defensive, and further downside may be seen.

 

In addition to stronger equity markets, gold may have to contend with a rising dollar. The greenback saw a nice bounce Friday after the jobs data was released, and has recovered much of the losses seen following last week’s disappointing GDP data.

 

More positive economic signs may keep the dollar on the offensive, as interest rate expectations may boost demand for the currency.

 

The recent rally in gold is likely in for a good test in the coming days and weeks, and near-term price action may provide some solid clues as to the underlying strength of the market. For now, we continue to look for dip-buying unless proven otherwise.