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Gold Prices Could Push Higher If Fed Signals Delay In Rate Hikes – Analysts

By Neils Christensen of Kitco News
Tuesday April 28, 2014 11:20 AM

(Kitco News) - Gold prices could continue to push higher this week as investors adjust their expectations for interest rate hikes, analysts said.

It is not expected that the Federal Open Market Committee (FOMC) will announce a rate hike following its monetary policy meeting on Wednesday and there will be no press conference or updated economic forecasts. But analysts and economists will be going through the statement with a fine-toothed comb looking for any details as to when the start of the tightening cycle will begin.

According to some economists, disappointing data during the first-quarter has already started to push expectations for the first rate hike to come in September instead of June. The highlight of that weakness was seen at the start of the month when the U.S. Bureau of Labor Statistics said 126,000 jobs were created in March along with a lower revision for February and January.

Consensus expectations are showing that, economists have downgraded their economic growth estimates for the first quarter to around 1%. The common theme has been that the stronger U.S. dollar has significantly dragged down exports, hurting the manufacturing sector. Ahead of the FOMC monetary policy statement, markets will receive the first print of the first quarter gross domestic product numbers, which could confirm those lower expectations.

In a recent interview, Bart Melek, head of commodity strategy at TD Securities, described the economic data in general as “terrible and it seems to be more insidious than just cold weather.”

He added there are now forecasts for first rate hike pushed back by seven to eight months, “putting us firmly into 2016.”

George Gero, vice president and precious metals strategist with RBC Capital Markets Global Futures, agreed that any postponement from the Fed will be bullish for gold in the near-term.

Economists from HSBC are also not expecting a rate hike before September as the central bank will want to see further improvement in the labor market. However, the bank’s commodity analysts say that this could have mixed results on the gold market.

“The prospect for a less than hawkish change to the FOMC statement would likely remove some of the near-term pressure that has been baked into the gold price, in our view. However, this is unlikely to mean more upside for bullion, as expectations for an eventual hike in the fed funds rate are likely to stall rallies in the medium term, we believe,” they said.

Of course not all economists are expecting the Fed to delay rate hikes. Economists at Capital Economics, said that although economic data in the first quarter is expected to be weak, a lot of it is weather related. They added that a June rate cut is still on the table.

“The Fed is still likely to raise its policy rate later this year. A September lift-off is the marginal favorite, but June and July are possibilities, if it becomes apparent quite quickly that the earlier weakness in the incoming data was a temporary weather-related blip rather than something more serious,” they said.

Economists at Nomura are also not expecting to see a material change in the Fed’s monetary policy statement or any suggestion that the trajectory for interest rate hikes has changed.

“Although it is quite likely that the FOMC will acknowledge the recent soft patch, we do not expect the Committee to suggest that it has a notable impact on its medium-term outlook for the economy and policy,” they said. “As such, given our outlook, we continue to expect the most likely timing of the first rate hike to come at the September FOMC meeting.”

By Neils Christensen of Kitco News; nchristensen@kitco.com
Follow Neils Christensen @neils_C



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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