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'Keep Your Zen' As Fed Rate Hike Approaches - Analyst

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‘Keep Your Zen’ As Fed Rate Hike Approaches — Analyst

(Kitco News) - As the Federal Open Market Committee meeting approaches, one analyst tells investors to keep their “zen” when it comes to gold prices.

The main driver for the yellow metal this week is the Federal Reserve’s highly anticipated rate hike on Wednesday.

Until then, there is “no clear direction in gold,” Boris Mikanikrezai, precious metals analyst at FastMarkets, wrote in a Seeking Alpha post on Sunday.

“The macro backdrop for gold has been fairly neutral since the start of the month, which is reflected in a marginally lower dollar and marginally higher U.S. real rates,” Mikanikrezai said.

But, whatever the Fed chooses to do, gold’s “positive long-term trend … is likely to prevail,” he noted. “I maintain my long IAU (iShares Gold Trust) position with a very long-term approach.”

Mikanikrezai’s analysis is based on Comex’s net speculative positions and ETF holdings.

The latest CFTC report showed that money managers cut their net long positions in Comex gold between March 6 and March 13 as gold prices declined from $1,339 to $1,326. “The net long fund position - at 385.17 tonnes as of March 13 – dropped 42.07 tonnes or 10% from the previous week (w/w),” the analyst’s post said.

Meanwhile, the ETF investors were net buyers of gold last week, Mikanikrezai added. “The pace of net inflows picked up last week, with the largest daily inflow occurring on Thursday 15 March – investors bought a total of 5.71 tonnes on that day, which corresponds to the largest daily inflow since January 19 (+7.39 tonnes),” he said. “The largest part of inflows came from the iShares Gold Trust ETF (+6.49 tonnes w/w).”

Mikanikrezai projects for the Fed to be less hawkish than expected on Wednesday, which could put downward pressure on the U.S. dollar.

"Although the Fed is likely to acknowledge the strengthening of the U.S. economic outlook on the back of a stronger global growth momentum and the domestic fiscal stimulus, it will remain reluctant to change its rate outlook due to the uncertainty surrounding the inflation outlook," he wrote.

Gold prices edged up as Asian markets opened early on Tuesday after recovering on Monday afternoon, led by weakness in the U.S. dollar and the stock market.

Spot gold on was last seen at $1,317.30, up 0.08% on the day, while April Comex gold futures were trading at $1,317.70, down 0.01% on the day.

“World stock markets were mostly lower Monday. U.S. stock indexes were pressured by a big drop in Facebook, amid allegations the social media platform gave away unauthorized data on 50 million of its users, which may have gone to the Russians. The specter of a protectionist U.S. trade policy and a likely rise in U.S. interest rates this week were also negatives for equity markets. All of the above worked in favor of the safe-haven gold market,” Kitco’s senior technical analyst Jim Wyckoff said in his PM Roundup

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 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.