It was September 2011 when gold reached its peak. It’s been years since gold has been out of favor. Does it mean that it’s time again for gold to regain its sheen?
What will happen in the weeks to come is what we all are waiting for , till then lets analyze gold’s price movement- how and why?
Gold was range bound on Thursday morning after the previous session’s price slump when a rally in global equities paused.
Gold did manage to rebound after hitting a 4-week low on Wednesday but many market players still have a negative sentiment in mind for gold.
Gold traded sideways for the week ahead of the much anticipated an talked about meeting of the Federal reserve that’s due on September 16 while investors remain cautious .
The spot gold price was last at $1,107.70/1,108 per ounce, little changed from the previous close. Trade has ranged from $1,104.0 to $1,108.6 so far. Gold slumped to $1,101.5 on Wednesday, the lowest level in a month.
With so much uncertainty surrounding the Fed’s monetary policy decision next week, the near-term outlook for gold can, at best, be described as mixed.
Although analysts are slightly more bullish heading into next week, their enthusiasm appears to be tempered. While some analysts are optimistic on gold prices and think that the yellow metal could bounce higher if the Fed delays its rate hike; however gains could be limited as expectations will only be pushed back until December.
Currently the market is divided into two segments-
Firstly the ones who believe that the Fed would raise rates on September 17 while the others believe the opposite.
Let’s take a brief look at both these segments-
If the Fed hikes rates at first it will be U.S. dollar positive and gold negative, but the tightening could create a selloff in equity markets and capital could start moving into gold.
If the Fed raises rates on Sept. 17 then he would expect gold to fall below support at $1,080. Traders can then lock in profits from that put. In fact this drop could bring in some strong buying momentum, for gold which could later drive gold prices higher at around $1160.
On the other hand, that if the Fed delays its hike it will be U.S. dollar negative and gold positive in the initial reaction. However, the loose monetary policy will support equity markets and capital will flow out of gold and back into stocks. If the Fed doesn’t hike rates then gold could push up to $1,150 in initial reaction.
Currently gold is being surrounded by a lot of uncertainties.
Though the FOMC meet will be the focus of the market, one should also bear in mind the key economic data slated for release during the week-
- U.S. August retail sales
- Regional manufacturing data
- The consumer price index for August,
- Housing market data.
The Federal Open Market Committee’s two-day policy meeting begins Sept. 16 and gold investors will focus on the conclusion to see if the central bank will raise rates for the first time in nine years. The consensus seems to be that if the Fed tightens, gold will suffer.
Apart from the US markets, another notable market is that of China.
China has now stepped into the global financial market by depreciating its currency, which has sent ripples through emerging market economies and may in turn unsettle financial markets in the months ahead.
The volatility in China’s equity markets has now stabilized, reducing both the tension in markets and the need for safe havens.
Another positive news coming for gold was from the India market where gold monetization has now been approved.
For now, The FOMC meeting on September 17 is expected to initiate a more definitive price movement, especially if the FOMC decides to increase the Federal Funds rate for the first time since 2006.
Staying positive for the yellow metal, market players are expecting prices to be around $1,200 an ounce by the last quarter of 2015, with sturdy demand coming from central bank purchases.