Gold finely poised ahead of next week’s FOMC meeting

Otmane El Rhazi from The Bullion Desk.

Gold remains on a knife edge while further slumps in oil prices and the prospect of higher US interest rates weigh against an otherwise improving backdrop.

The spot gold price was last at an unchanged $1,226.00/1,226.90 per ounce after trading within a $10 intraday range.

On the upside, poor industrial production numbers out of China this morning at 7.2 percent -below the forecast 7.6 percent and down on the previous reading of 7.7 percent – will only add to the prospect of further Chinese stimulus measures from Beijing to buoy the slowing economy.

Still, fixed asset investment at 15.8 percent was in line with expectations and retail sales data at 11.7 percent was up from the previous and forecast 11.5 percent.

Confidence in gold as a source of safe-haven investment has improved on weak oil prices, which are exacerbating concerns over world economic growth.

But further slumps in oil prices also threaten to offset general commodities sentiment, with Brent crude hitting another fresh five-year low at $62.97 per barrel this morning, while WTI broke through the $60 mark and was last at $58.75, also a five-year low.

And next week sees the final FOMC meeting of the year, which poses a high degree of risk to the gold market. Expectations are that the phrasing in its statement may change because slack in the labour market appears to be easing, although inflation remains weak.

A move towards lifting interest rates would reverse the positivity building in the gold market – investors would favour more yield-bearing assets.

“There has been talk that the FOMC meeting next week will see the committee removing the all-important phrase “considerable time” from their minutes; if that happens, it ought to send gold plummeting heavily as the rate hike draws nearer,” Howie Lee, investment analyst at broker Phillip Futures, said.

“Gold’s recent climb means the space for downside now presents more opportunities than upside potential,” he added.

In data out of the eurozone, the German WPI at -0.7 percent undershot the expected 0.3 percent, while industrial production at 0.1 percent for the entire bloc was short of the forecast 0.2 percent. The employment change reading of 0.2 percent was as predicted

The US PPI, the core PPI and preliminary UoM consumer sentiment data are due later.

In the other metals, silver at $17.15/17.20 per ounce was up 10 cents, while platinum at $1,238/1,243 was up $2, as was palladium at $815/821.

(Editing by Mark Shaw)

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