Gold Silver Reports (GSR) – Fed, ECB To Define Gold Prices Near Term Target – Many analysts have noted that gold has followed a well-established pattern: selling off before an expected rate hike to then rise once the dust has settled. The question on many investor’s minds is whether or not this pattern will hold next week as inflation picks up as the U.S. economy continues to grow at a steady clip.
The market is ending the week in a fairly tight range. August gold futures settled the week at $1,302.70 an ounce, up only 0.26% since last week.
For many analysts, a dovish hike scenario would be the Fed signaling only on more rate hike this year, which would most likely happen in December.
In a recent interview with George Milling-Stanley, head of gold investments at State Street Global Advisors, said that a dovish hike would see gold recapture its lost territory reasonably quickly. He added that he could see gold back between $1,350 and $1,400 an ounce.
“I would expect gold to rebound quite well as soon as the Fed announcement is out of the way,” he said. “This June move has been so well telegraphed that I don’t think it will take longer for the gold market to adjust.”
However, even if the Fed signals only one more rate hike this year, the timing of the next hike will be essential, according to Martin Murenbeeld, president of Murenbeeld & Co. In an interview with Kitco News, he said that if markets price in a September rate hike then gold might only rally $10 for a brief time.
Other analysts are not optimistic that the Fed will embark on a dovish hike. Colin Cieszynski, chief market strategist at SIA Wealth Management Inc., said that rising inflation along with a growing economy will keep the Fed on pace to raise interest rates once a quarter through 2019.
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“Right now the Federal Reserve doesn’t have much reason to stop raising rates at this point,” he said.
Bill Baruch, president of Blue Line Futures, said that there are growing risks that the Fed could be hawkish next week as it becomes more empowered to normalize interest rates as the European Central Bank signals that they are moving forward with its plans to tighten monetary policy gradually.
“I think the Fed was hesitant to aggressively hike rates this year as the policy divergence was turning out to be bigger than they wanted. But that is no longer the case,” he said.
Tightening In Tandem
While gold could take a hit following hawkish comments from the Federal Reserve, Baruch said that there is still a chance for gold to rally.
Along with the Federal Reserve, the ECB is holding its monetary policy next week. While the ECB is not expected to tighten rates now, economists expect the central bank President Mario Draghi to set the stage for tighter monetary policy later as it looks to end its bond-purchase program later in the year.
“A hawkish stance from the ECB would strengthen the euro, which would drag down the U.S. dollar and that will ultimately be positive for gold,” said Baruch. “For the gold market, I think there is more upside potential in the euro than there is in the U.S. dollar.”
While there is still strong momentum driving the U.S. dollar, there is a chorus of currency analysts that are warning that the market is overbought and is due for a pullback.
“We think the USD is more inclined to trade with a weaker tone in line with our rates expectation and ultimately reliant on the ECB meeting a few short hours after,” said currency analysts at TD Securities. – Neal Bhai Reports
