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Fear Of A Fed Rate Hike Drives Gold Down 1.5%, Silver Down 2% - Analysts

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(Kitco News) - The threat of a rate hike this year is spooking gold and silver investors as the yellow metal sees its worst day in two weeks, according to some analysts.

Initial selling pressure pushed gold prices through the critical psychological support level at $1,300, which caused further technical selling in the marketplace. June gold futures last traded at $1,294.40 an ounce, down nearly 1.5% on the day.

Silver is suffering even more than gold, with prices dropping more than 2% on the day and trading below $15 an ounce — the metal’s worst day in a month. May silver futures last traded at $14.89 an ounce.

Phillip Strieble, senior market strategist at RJO Futures, weighed in on precious metals following the release of the Federal Reserve’s March monetary policy meeting minutes, published on Wednesday, which were less dovish than economists were expecting.

Although the minutes showed that most members of the Fed do not see a rate hike this year, there was no explicit talk of cutting rates.

“Investors are starting to speculate that with the U.S. economy chugging along there will not be a rate cut this year,” said Strieble. “This is weighing heavily on gold.”

However, Strieble said that this selling pressure appears to be overdone as there is still a lot of uncertainty over the health of the U.S. and global economy.

Before the Fed released its minutes, the International Monetary Fund (IMF) downgraded its growth forecasts for 2019. The IMF now sees the global economy expanding by 3.3% this year, down from its previous estimate of 3.5%. The U.S. economy is expected to grow 2.3%, down from the previous projection of 2.5%.

Strieble added that although gold is seeing some technical damage with prices falling below the 100-day moving average, he is still not overly bearish on the yellow metal.

“I wouldn’t be really bearish on gold until prices close below $1,284. If that happens then you will see an unwind of long positions,” he said.

Despite the short-term selling pressure, Streible said that investors might want to take a longer-term view on gold. He added that he likes the idea of buying an August $1,320 call options to limit risk.

Andrew Hecht, creator of the weekly Hecht Commodity report, agreed that investors need to look gold and silver’s short-term momentum.

“Investors are spooked because there is still a possibility that the Fed can still raise rates this year, I think the possibility is very low, but it's there,” he said. “I think you need to look at the bigger picture. Economic growth is going to be muted and that will keep long-term pressure on the U.S. dollar and interest rates.”

Hecht said that he prefers silver over gold because it is so undervalued in the marketplace. The gold silver ratio traded at 86.72 points.

“The gold-silver ratio is at its highest level since 1992. At some point something has to give,” he said. “I am a scaled down buyer of silver at these levels.”

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.