Negative data driving Fed policy, boost for gold

 

The New York gold price closed Wednesday at $1.125.80 up from $1,121.40 up $4.40. In Asia on Thursday, it pulled back to $1,118.35 ahead of London’s opening and then the LBMA set it at $1,119.00 up from $1,116.50 with the dollar index down at 98.85 from 99.00 on Wednesday. The euro was up at $1.0910 $1.0874 against the dollar with a wide spread. The gold price in the euro was set at €1,025.66 down from €1,026.76. Ahead of New York’s opening, the gold price was trading at $1,119.65 and in the euro at €1,026.26.  

The silver price in New York closed at $14.48 down 2 cents at Wednesday’s close.  Ahead of New York’s opening, the silver price stood at $14.42.

Price Drivers

Wednesday saw no purchases or sales to or from the SPDR gold ETF but a purchase of o.72 of a tonnes into the Gold Trust. The holdings of the SPDR gold ETF are now at 669.229 tonnes and at 165.85 tonnes in the Gold Trust. We expect the gold price try to climb in consolidation mode, today.

The story of the day was the Fed’s decision yesterday and the comments attending the announcement. With a vast array of commentary on this and the future of rate hikes, we suggest readers keep an eye on the overall perspective surrounding the announcement.

To us it was clear that the Fed is data driven and the data is negative. Pertinently, the Fed announced it would monitor the global economy carefully. We have to factor in the changing global cash flow and note that the U.S. is not an island, but very much a part of the global economy, so it must take note of the impact of U.S. interest rates, no matter how small.

The Fed is thus seeing the U.S. in a global context, not just with its eye on the U.S. economy. The recent plunging of global markets bears testament to this. In particular, the level of the U.S. dollar exchange rate has become very, very important. We see the Fed as not being happy with it going any stronger and wants it to remain below 100, on the dollar index or lower.

The importance of this lies in the impact on U.S. exports and imports which are very much a part of the global economy. Evidence of this is the declining market share of Boeing, losing to Europe’s Airbus. We see exchange rates in 2016 becoming a major focus of the global economy and a telling factor on gold prices, particularly in the dollar.

But gold prices do not just reflect exchange rates and inflation. If they reflected inflation they would be moving around $15 a year at present, but we have seen that in the last week. The changing shape of global gold demand and supply alongside fundamental structural changes in the gold markets will decide the gold price in 2016.

Silver should take a breather today alongside gold.

Julian D.W. Phillips for the Gold & Silver Forecasters – www.goldforecaster.com and www.silverforecaster.com

 

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