Gold makes subdued start to week, Fed meeting eyed

Otmane El Rhazi from The Bullion Desk.

The gold price was holding above four-month lows on Monday morning, with all eyes on Wednesday’s Federal Reserve meeting for near-term direction.

Spot gold was last at $1,157.50/1,158.30 per ounce, down 10 cents on the pre-weekend close, with the metal continuing to trade in the $1,150-1,160 range that prevailed throughout most of last week.

Other metals were similarly subdued – silver was last six cents higher at $15.66/15.71 per ounce, platinum was up $1 at $1,113/1,118 although it hit another six-year low earlier at $1,111 and palladium was down $3 at $785/790.

Attention is now on Wednesday’s monthly Fed statement on monetary policy. With the US central bank supposedly close to raising interest rates, the language in the statement will be heavily scrutinised for clues as to when it will do so.

According to speculation, the term ‘patient’ in regards to raising rates will not appear in the statement following a run of strong data and slack in the labour market continuing to lessen.

“Focus will be squarely on the FOMC this week and will have big repercussions for the market in general,” MKS’ Alex Thorndike said in a note.

“This exclusion of ‘patient’ should have a downward emphasis for gold while no change to this language will likely see gold snap higher quite sharply – either way we think there will be fireworks around this announcement,” he added.

Higher interest rates will ultimately dampen gold’s credentials, with investors likely to seek more yield-bearing assets such as bonds in the face of higher US interest rates. Secondly, many believe that a rate rise would be the first of many, outing significant downside pressure on gold.

“Our economists expect the first rate hike in September,” Commerzbank said. “In the current market environment we believe that gold will have trouble achieving any significant or lasting price increases.”

The dollar remains near 12-year highs at 1.0535 against the euro although physical support out of China this morning was moderate, keeping prices buoyed above $1,150. The premium on the SGE was quoted at around $4 over the spot, according to MKS’ Thorndike.

The data calendar today is quiet in Europe while out of the US later will be industrial production figures, the capacity utilisation rate and the NAHB housing market index.

Elsewhere, Chinese Premier Li Keqiang warned over the weekend that the domestic economy faces what he called “considerable” downward pressure on growth, while reflecting on the difficulty that it faces in meeting its annual GDP target of around seven percent.

Keqiang also hinted that the country could turn to “relatively big” stimulus measures if the economic slowdown were to hit the employment sector or fall to the “lower limit”.

(Editing by Mark Shaw)

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