As we all know, lately gold has been majorly influenced by any data released from the Fed regarding its interest rate.
Gold prices dropped in Asia on Thursday as China markets returned from holidays and investors stake positions ahead of Fed minutes later in the day.
Trading activity had become more muted as the September Federal Open Market Committee (FOMC) meeting minutes approached.
Investors awaited the release of the minutes from the Fed’s September meeting on Thursday for further hints on whether the U.S. central bank could raise short-term interest rates before the end of the year.
A combination of a weakening US economy and sowing down Chinese one, led to a delay in the rate hike expectation.
Now majority of the market players believe that rate hike won’t come in before March 2016.
Gold prices climbed on Friday morning after the release of minutes of the Federal Reserve’s September meeting raised speculation that the US central bank could wait until next year before tightening monetary policy.
Spot gold was last at $1,154/1,154.40 per ounce, up $14.40 on Thursday’s close. Trade has ranged from $1,139.50 to $1,154.60 so far.
The shifting expectations are helping to weaken the U.S. dollar and in turn boosting gold prices. Early in Friday’s session, December gold futures ended up hitting their highest prices since late August and are preparing to end with gains of almost 2% for the week. As of 12:40 p.m. EDT, December gold last traded at $1,158.70 an ounce.
One of the main reasons, apart from soft data, that has delayed the rate hike is the limo inflation in the US. It has prevented the central bank for raising rates from near-zero levels, where they have been since December 2008.
The FOMC decision not raise the federal funds rate has led a majority of market participants to look at 2016 for a normalization of US monetary policy.
To state the exact month would be quite difficult but it could be around March or June 2016.
The Fed has been locked in an intense debate over the timing of a rate hike with sagging inflation impeding a launch-off.
Interest rates have been at near-zero levels since December 2008 and haven’t increased since 2006.
The other data released along were-
- Weekly unemployment claims came in at 263,000, besting the forecast by 9,000 and under the psychological 300,000 mark.
- September import prices month-over-month fell 0.1 percent, beating the forecast of -0.5 percent
- Wholesale inventories month-over-month were in-line with projections at 0.1 percent
The FOMC minutes elaborated on its concerns about global markets, particularly the Chinese slowdown.
The September minutes released by the FOMC Thursday evening suggested that policymakers are unlikely to rush to tighten rates amid concerns over a China-led global economic slowdown.
The minutes stated that although US economic data releases generally met market expectations, domestic financial conditions tightened modestly as concerns about prospects for global economic growth, centered on China, prompted an increase in financial market volatility and a deterioration in risk sentiment during the intermeeting period.
Chinese markets reopened after a prolonged holiday as US trading session was the final one before a holiday weekend.
The minutes further stated that although US economic data releases generally met market expectations, domestic financial conditions tightened modestly as concerns about prospects for global economic growth, centered on China, prompted an increase in financial market volatility and a deterioration in risk sentiment during the intermeeting period.
Weak data sees gold prices to be in the positive territory. Moreover, in the Indian markets we see demand for gold to move high as the markets welcome one of the main gold buying festivals- Dussehra and Diwali.
On the contrary gold prices could move lower next week term as markets have priced in renewed geopolitical turmoil in the Middle East.
Most analysts, though, are bullish on gold as the market is seeing a technical shift. Many expect to see prices retest the August highs at $1,170 an ounce and the 200-day moving average at $1,178.20 an ounce.
Though gold prices are likely to move higher, a stronger equity market could take some momentum away from gold.
When the Fed does start raising rates, something it has not done in nine years, it will eventually mean higher rates for consumer and business borrowers. But Fed officials, including Chair Janet Yellen, have stressed that the rate increases will likely be very gradual, meaning that rates would still remain near historic lows for a while.