Gold: Still Above Strong Psychological Barrier Of 1,200
- The minutes from the Federal Reserve meeting showed policymakers worried that a global slowdown and financial market selloff could hurt the US economy and considered changing the central bank's planned interest rate hike path for 2016. Although most of the policymakers still expected to raise rates this year and even discussed a hike at the January 26-27 policy meeting, they were divided over how to interpret the financial market volatility.
- That suggested the Fed was backing away from the four rate hikes that were signaled for this year in December. Investors’ skepticism that the Fed would raise rates at all this year increased after the release of the minutes. Prices for fed funds futures implied investors saw a roughly 30% chance of a hike in December and less than that at prior meetings. Bets on a December hike were about 40% before the minutes were released.
- Fed Chair Janet Yellen said last week the US central bank still expected to raise rates gradually in 2016 but acknowledged a weakened global economy and a steep slide in stock markets was tightening financial conditions faster than the Fed wants.
- St. Louis Fed President James Bullard said It would be unwise for the US Federal Reserve to continue hiking interest rates given declining inflation expectations and recent equity market volatility. Bullard for much of last year argued for an earlier rate hike, but said he now feels key assumptions supporting higher rates have been undermined.
- US industrial production jumped 0.9% mom in January, the largest gain since November 2014. The increase followed a 0.7% decline in December and was boosted by a 0.5% advance in manufacturing output. Industrial output was also buoyed by a 5.4% surge in utilities production as the return to normal winter temperatures saw a jump in demand for heating.
- The fairly upbeat industrial production report added to data last week showing strength in consumer spending in suggesting that economic growth picked up early in the first quarter after abruptly slowing in final months of 2015.
- In a separate report, the Commerce Department said groundbreaking activity on new housing projects fell 3.8% to a seasonally adjusted annual pace of 1.099 million units last month. Building permits dipped 0.2% to a 1.202 million-unit rate last month. Permits remain above starts, indicating that building activity will rebound in the coming months.
- Gold eased on Thursday as stocks rebounded but managed to hold above 1,200 an ounce, which is a strong psychological support level. In our opinion a slower Fed rate hike pace could boost demand for gold.
- The World Gold Council said gold investment demand in China has started 2016 quite strongly, outperforming interest in jewellery. China, the world's top bullion consumer, has seen strong demand for investment products such as bars around last week's Lunar New Year holiday. The holiday is typically a strong demand period for gold as it is a popular gift, but buying then tends to slow. Investment demand only accounts for around 20% of total Chinese consumption, the bulk of which is in jewellery and jewellery demand has taken a hit from a slowing economy
- We have already seen a corrective move of gold price, but a further fall in the coming sessions cannot be excluded. We have lowered our bid to 1,190.
- Long-term outlook is slightly bullish. However, we expect rather moderate gains in gold price in the coming months. In our opinion market expectations for the Fed rates path are too dovish now and we expect the Fed to increase pace of monetary tightening in the second half of the year. Gold prices could give back some gains when market expectations change.
Source: Growth Aces - Forex And Precious Metals Trading Strategies