Gold & Silver Report – 30 March 2015

Gold prices enjoyed a rally for most of the week, reaching 2-½ week highs, after the previous week’s Fed meeting shifted expectations of a U.S. interest rate hike back to September and weakened the U.S. dollar. Geopolitical tension on the middle-east also supported Gold. The precious metal’s price eased on Friday as investors cashed-in their profits and the U.S. dollar stabilised.

On Monday Gold retained gains from the previous week, boosted by a weaker dollar and caution from the U.S. Federal Reserve on the timing of a possible rate hike. The metal entered a three-day rally that was near its highest in two weeks. Gold then retained its gains and entering a four-day rally rose to a 2-1/2 week high, the highest since March 6 as the U.S. dollar weakened under expectations that the hike could be pushed back to September.^[1] On Wednesday and Thursday Gold held firm near the 2-1/2-week high on Wednesday, underpinned by economic data that showed U.S. business investment spending plans fell for a sixth straight month in February, further growing expectations of a later rate hike. Gold also drew safe-haven support from geopolitical tensions, with Saudi Arabia launching air strikes in Yemen in coalition with Gulf region allies to counter Iran-backed forces.^[2] Gold finally eased on Friday after a seven-day rally as traders cashed in profits and as the dollar rebounded on strong U.S. data.^[3] Investors were also cautious ahead of Friday’s comments from Janet Yellen, chair of the U.S. Federal Reserve.

The week before, gold had dipped to a four-month low in anticipation of the Fed meeting confirming higher U.S. interest rates, which dent demand for non-interest bearing bullion. The Fed’s cautious announcement shifted the market’s expectations to now expect the Fed to hold off until September. This also had the effect of causing investors to cut long dollar positions sending the U.S. plummeting from previous highs. The weaker dollar makes the yellow metal cheaper for foreign investors which further increases its appeal.^[4] Howie Lee of Phillip Futures said “With the rate hike not expected until September, some unwinding of short positions on gold are expected and a weaker dollar in the interim is also set to boost demand for gold”.^[5]

On Friday, Janet Yellen’s comments were considered by some to be vague and ambiguous. However, the comments were probably reasonable given the complicated mix of positive and negative economic data from the U.S. of late. In particular, the recent growth is not yet strong enough to make a clear decision.

By Lisa Casagrande | https://www.goldbullionaustralia.com.au