Gold poised to retest $1,200 again ahead of vital Fed minutes

Otmane El Rhazi from The Bullion Desk.

The gold price is once again poised to retest $1,200 while the market readies for the release of the minutes of the last FOMC meeting, which will be scrutinised for hints on the timing of US interest-rate rises.

Spot gold was last at $1,198.20/1,199.00 per ounce in Wednesday mid-morning trading, up $3.80 on the previous session’s close. It hit a session high of $1,201.40 earlier but for the second time in two days was unable to hold above $1,200.

Should the US Federal Reserve, which is largely seen raising rates in mid-2015, adopt in hawkish tone in the minutes in line with the strengthening US economy, the dollar is likely to strengthen and gold’s credentials as a safe-haven asset would be dampened.

But the dovish tone of the previous statement pushed gold around one percent higher, revealing that US central bankers were concerned about the rising dollar, slack in the labour market, inflation and the negative economic situation in Asia and Europe.

“Gold is historically sensitive to changes in monetary policy expectations. A drop in the phrase ‘considerable time’ by the Fed would be viewed as negative for the bullion market,” HSBC analyst James Steel said, although he added that it could be argued that a shift in the Fed policy is already largely priced in.

Higher interest rates will have a negative effect on the gold market, pushing investors to yield-bearing assets such as equities and bonds.

Elsewhere, the results of a second Swiss TV poll on the ‘Save our Swiss Gold’ initiative could be announced today, results of which will have implications on the gold market.

“We’ve held the view that the probability of the initiative passing is low and that this is likely to be reflected in the opinion polls leading up to the November 30 vote as the public becomes more informed of the issues,” UBS’ Edel Tully said.

“Higher-than-expected support for the initiative could potentially make investors uneasy – although not our base case, we have flagged that a surprise yes-vote would act as a significant tailwind for gold,” she added.

This morning, the EU current account at 30 billion euros beat the forecast 21.3 billion euros. From the US, building permits, housing starts and crude oil inventories are still to come.

Japan’s central bank said it will maintain its current monetary policies despite the country slipping back into recession last week, claiming that its economy continues to “recover moderately”.

There is growing speculation that India may tighten gold import restrictions from today to tackle its ballooning current account deficit.

Higher restrictions will have downside risks for gold, although some investors see this as an opportunity to invest in silver – Indian consumers may turn to other precious metals to meet jewellery demand.

Silver continues to perform well – it was last nine cents higher at $16.19/16.24 per ounce and looking to build a base above $16. Platinum at $1,203/1,208 was up $8 and palladium edged $1 higher to $770/775

(Editing by Mark Shaw)

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