Gold prices ended the U.S. day session solidly lower and hit a four-week low Wednesday. Modest overnight selling pressure accelerated at the U.S. Comex futures opening, when sell stop orders were triggered as prices moved below key near-term technical support levels. December Comex gold was last down $16.50 an ounce at $1,329.70. December Comex silver was last down $0.38 at $18.685 an ounce.
The “outside markets” were also bearish for the precious metals Wednesday. Nymex crude oil futures prices were lower. Crude prices are still in a near-term uptrend, however. It appears Nymex oil prices are stuck in a trading range between $40.00 and $50.00 a barrel. Meantime, the U.S. dollar index was higher but still trading not far above last week’s seven-week low.
Fed Chairwoman Janet Yellen’s speech in front of important central bank executives from around the world is fast approaching. The long shadow of Friday’s address at Jackson Hole prompted gold investors to move off the sideline and, unfortunately, do some selling.
That is expressive of a mindset that says Yellen is going to indicate rates will be rising sooner rather than later. However, we’re not so sure. Yellen, like most Fed chairmen before her, sticks to the scripts of the previous meetings’ minutes. We also think she will address the interconnectedness of the world’s finances, and how the goal should be to get the three or four major economic power-centers to run hot at the same time.
UBS looks for any potential damage from Federal Reserve hawkishness to be limited. “The focus this week will be Fed Chair Yellen's speech at Jackson Hole, where investors will look for guidance on Fed policy,” UBS says in an early-week research note. “We expect Fed comments to hint at the potential for a hike later in the year – improving U.S. data and hawkish comments from the Fed could weigh on gold, especially given positioning has lingered close to all-time highs.” Net speculative length on Comex as of Aug. 16 was around 91% of the all-time high, despite a decline over the past six weeks, UBS says. “Having said this, we think the gold trade is not overcrowded and any downside should ultimately be limited amid lurking interest to buy dips. We have held the view that the impact of Fed policy decisions to gold are not as straight forward in this environment where global yields are under pressure and macro uncertainty is elevated. While gold is likely to come under pressure ahead of a Fed rate hike – which we expect to occur in December – we would view the dip as a buying opportunity.”
Other than worrying about what Federal Reserve Chair Janet Yellen will say Friday, conditions remain favorable for gold, says Commerzbank. Traders will be closely monitoring Yellen’s scheduled speech at a Fed symposium for clues on whether to expect an interest-rate hike, particularly after hawkish comments from other policymakers over the last week. “Apart from this short-term factor, the environment for gold and silver remains positive,” Commerzbank says. “The monetary policy pursued by the major central banks is and will for the foreseeable future remain ultra-expansionary. Even a 25-basis-point rate hike by the Fed would do little to change this. Around the world, bonds worth $12 trillion are meanwhile showing negative yields – something that has never happened before to this extent. Then there are the numerous political and geopolitical uncertainties, so any falls in the prices of gold and silver should prove short-lived.”
Reference: Kitco
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