Most of the global asset markets were quite unpredictable this week. Be it equities, precious metals, bond yields or oil- they moved up and down following last week’s FOMC meet.
Coming to gold, it neared its second weekly gain on Friday afternoon, touching $1145 per ounce but plunged back following new comments on US interest rates from Fed chair Janet Yellen.
Increased risk sentiment helped gold prices to end Friday’s session modestly lower with prices settling at $1,145.60 an ounce; however, the yellow metal has managed to end the week in positive territory, up 0.6% – its second consecutive weekly gain.
Spot gold was last at a high of $1,144.80/1,145 per ounce. Prior to a speech from Federal Reserve chair Janet Yellen in which she said the Fed has not ruled out the start of policy normalization before 2016, gold had been trading at two-month highs.
The gold price surged to its highest since August 25 during Thursday afternoon sessions as the yellow metal took advantage of a slump in the US dollar.
On Friday afternoon, gold moved back from Thursday’s gains, after the release of positive US data and talk that the country’s central bank will increase interest rates by the end of the year.
The US data released were as follows-
- Final GDP was better than expected at 3.9 percent
- Services PMI at 55.6.
- Revised UoM consumer sentiment and inflation expectation at 87.2 and 2.8 percent were little changed
A slowing global economic activity and excessively low inflation had delayed the Fed’s decision to hike interest rates. Its decision had raised concerns about the economic stability of the US, China and rest of the world and resulted in lifting of the dollar.
Aggressive comments from Yellen have provided the dollar with renewed upside momentum, depressing bullion prices through reduced safe-haven demand.
There are expectations in the market that the FOMC is likely to raise the federal fund rates in December as they witnessed a likely upwards revision to US-second quarter GDP growth
Gold declined on Friday morning after Federal Reserve chairwoman Janet Yellen expressed optimism that the US economy would warrant an increase in interest rates before the end of this year.
She stated that it will be appropriate to raise rates in 2015. Now there are around 13 weeks let in 2015 and two more FOMC meetings are lime up in October and December each, which means there are just two opportunities left to raise interest rates.
Federal Reserve Chair Janet Yellen has spoken, and an interest rate hike remains on the table for 2015, but one trend watcher says the central bank is just talking ‘really tough.’
Moreover, Yellen noted that ‘idiosyncrasies’ like lower oil prices and weaker overseas economies have delayed the Fed from pulling the trigger.
Yellen said FOMC officials “expect that the various headwinds to economic growth will continue to fade, thereby boosting the economy’s underlying strength.”
Yellen’s bullish sentiment was buoyed through the third revision to second-quarter US GDP growth to 3.9 percent from 3.7 percent. The final GDP price index quarter-over-quarter was in line with forecasts at 2.1 percent.
Yellen and her colleagues at the Federal Open Market Committee (FOMC) have maintained interest rate at near-zero levels since December 2008.
Persistently low inflation, emerging global slowdown and an uneven recovery remain obstacles for the FOMC members to normalizing monetary policy.
Though the yellow metal is still showing encouraging signs, but in event of a rate hike, the impact on gold would be bad.
Currently old is searching for a direction as the FOMC has left the market wandering. The picture will get clearer by the end of the year or maybe early 2016.
Currently one need to follow the FOMC religiously as gold’s whereabouts depends on the Fed’s directions.