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Gold Futures Modestly Softer As Dollar Strengthens After Fed Symposium

(Kitco News) - Gold futures are starting the week with a slightly softer tone after the U.S. dollar strengthened overnight in the aftermath of comments from Federal Reserve Chair Janet Yellen and other policymakers late last week that were hawkishly construed, traders said.

As of 8:16 a.m. EDT, Comex December gold was $3.40 lower at $1,322.50 an ounce. December silver was down 10 cents to $18.645.

Meanwhile, the euro was down to $1.11712 from $1.11950 late Friday.

“Post-Yellen, the dollar was very strong,” said Phil Flynn, senior market analyst with Price Futures Group. “I don’t know if it was so much Janet Yellen as it was (Vice Chair) Stanley Fischer afterwards. But regardless, gold is now pricing in an increased possibility that maybe we’ll see interest rates increase this year, maybe as early as September, although I do think there’s still a lot of skepticism about that.”

Fischer told CNBC two rate hikes were even a possibility yet this year. The market majority, however, does not expect one until December.

“According to the Fed fund futures, the likelihood of the Fed raising rates this year is now around 75% again,” said an overnight research note from Commerzbank. “This is the highest level since the beginning of June, when weak May labor market data caused interest rate expectations to fall sharply.”

Gold came under pressure shortly after the start of trading in the Asia-Pacific region.

Live 24 hours gold chart [Kitco Inc.]

“The precious complex continued to slide lower during Asian trade today, with the hawkish rhetoric out of the Fed on Friday continuing to buoy the USD (U.S. dollar) as participants position themselves for the potential of a September rate hike and potentially a further hike after this,” said Sam Laughlin, trader with MKS (Switzerland) S.A.

Fed Chair Janet Yellen said Friday that with “continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the Federal funds rate has strengthened in recent months.”

Still, gold managed to hold up for most of Friday’s session, with some traders at the time suggesting she was not as hawkish as perhaps some feared. She reiterated that policymakers’ action still hinges on future economic data.

“And, as ever, the economic outlook is uncertain, and so monetary policy is not on a preset course,” Yellen said. “Our ability to predict how the Federal funds rate will evolve over time is quite limited because monetary policy will need to respond to whatever disturbances may buffet the economy.”

The market’s big focus this week will be Friday’s release of the monthly U.S. nonfarm payrolls report.

“Should the nonfarm payroll number come in better than expected, I look for gold to pull back and challenge at least the 100- day moving average (near) $1,300 basis December futures,” said Sean Lusk, director of Walsh Commercial Hedging Services. “Should the jobs data disappoint, I look for gold to challenge $1,360 to the upside. A positive jobs number puts the probability of a rate hike as soon as September at the forefront.”

Flynn put his key support for December gold around $1,300, with resistance at $1,368.

Live 24 hours silver chart [ Kitco Inc. ]

By Allen Sykora of Kitco News;



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