Julian Phillips’ latest take on what’s driving the precious metals markets. Sees Fed waiting longer to implement a rate rise.
There were purchases of 1.791 tonnes of gold into the SPDR gold ETF but no movement was seen in the holdings of the Gold Trust on Wednesday. The holdings of the SPDR gold ETF are at 749.774 tonnes and at 164.02 tonnes in the Gold Trust. The purchase was not, of itself, sufficient to cause the gold price to rise, but the accompanying short covering as the dollar index dropped to 98.81 and to over $1.07 against the euro, were.
Speculators were given quite a fright as they misread the Fed, the dollar and the state of the gold market. With traders and speculators in command of the U.S. gold market, while Asia continues to buy all available volume of gold offered, short covering drove the gold price as high as $1,182 at one point in the U.S., but the market then settled down to close at $1,171. This was the strong move that we were expecting.
Now the gold market must digest the Fed’s words and the likelihood of a longer wait before rate hikes happen, at a glacial pace, and in small rises, until inflation is confirming it will reach 2% in the medium term. This is positive for gold as it does indicate that the dollar’s rise will falter.
It is clear that the Fed is unhappy with the financial market’s propensity to take small changes in wording as a definitive indication that rates will rise on a certain date. Janet Yellen, made it clear that the timing of rate rises will be ‘data driven’ as they have not decided when they will raise rates. A major concern of the Fed is the volatility caused by financial market’s determination to translate every word into impending action. Nevertheless, financial markets and commentators will not change. Hence, the Fed will wait longer than needs be before acting as this will cause the least disruption to the U.S. economy and financial markets.
It is possible that the Fed will act anytime between June and next year on rates, a positive for gold and silver.