The Fed Will Only Raise Rates In December - RBC Capital Markets
Tuesday May 24, 2016 14:44
(Kitco News) - Gold prices are hurting on renewed expectations of U.S. interest rate hikes as early as June, but some analysts say the Federal Reserve is unable to make its move at least until later in the year.
“Our RBC economics team has maintained its forecast for the next Fed rate hike in December,” noted RBC Capital Markets’ equity research team in a report Tuesday.
Gold has been under pressure since the release of last week’s Federal Open Market Committee minutes, pushing the metal to a 4-week low Tuesday. June Comex gold futures settled Tuesday’s session at $1,229 an ounce, down $22.30.
RBC Economics analysts said that despite the “surprisingly hawkish” minutes, it is “nearly impossible” for the committee to raise rates in June.
“Additionally, we think a lot of things have to align in order for the Fed to justify a lift at the July confab. September is still complicated by Money Market reform and November (the meeting is on the 2nd) falls right on top of the US Presidential Election,” they added.
Over the shorter term, market expectations for further tightening by the Federal Reserve will continue to be a key negative driver for the yellow metal, RBC said.
“The April FOMC minutes, released last week, featured more hawkish commentary than expected, putting a summer rate hike back on the table, with the probability of a hike now sitting at 32% for June and 44% for July,” the analysts pointed out. “This has had a corresponding negative impact on the gold price, which has declined by ~$30/oz over the past week.”
However, according to the analysts, given that interest rates will only rise towards the end of the year, there will remain positive factors for the metal.
“Catalysts that we think would be supportive for gold and gold equities include a push out in a rate hike beyond June/July, a recovery in valuation multiples after a contraction over the past few years, and continued improvement in gold company fundamentals including strengthening balance sheets, better capital allocation decisions, and conversion of resources to reserves.”