Gold & Silver Report – 23 March 2015

This week the gold market skimmed to its lowest in three weeks, before rallying after the week’s U.S. Federal Reserve meeting, which despite removing its “patient” stance, indicated a cautious outlook on the longer term pace of U.S. economic growth.

Price and charts snapshot:

Source: Bloomberg (Monday morning AEST)

Source: NASDAQ

On Monday gold fell due to strong European shares and continued expectations that the U.S. Fed will raise interest rates.^[1] The trend continued into Tuesday, as the Fed’s two-day meeting begun, with Gold prices hovering near their lowest in three months while traders were waiting for the meeting to indicate more about the timing of the U.S. rate hike.^[2] On Wednesday, before the conclusion of the Federal Reserve meeting, prices already dropped near a four month low, particularly after the Fed dropped the word “patient” from its policy, a move considered to potentially pave the way for a June rate hike.^[3] However, by the conclusion of the meeting the Fed in fact signaled a cautious outlook for U.S. economic growth. The U.S. dollar tumbled causing gold prices to surge over 2%.^[4] Gold first rose to its highest in nearly two weeks on Thursday as fallout from the U.S. Federal Reserve meeting,^[5] but later eased from its earlier two-week high as the dollar recovered.^[6] Gold prices ended with two-week highs on Friday, poised for their biggest weekly jump since mid-January, after the Fed’s cautious attitude and outlook prompted broad-based buying of commodities.

This week’s news shows that the Fed is still a highly watched market indicator. The Fed;s cautious outlook on the U.S. economy dampened prospects, which was good for gold.^[7]

HSBC analyst James Steel said “The removal of the word “patient” from the FOMC’s (Federal Open Market Committee) guidance may initially pressure gold prices, especially if it helps to further boost the dollar,” but of the cautious outlook added “That said, if a rate rise does not occur in June or if inflation data does not move up to the 2 percent target level, then investor sentiment toward gold may change for the positive and prices may trade higher.”^[8]

While the dollar dropped and caused a gold rally, most views suspect the greenback’s strength will persist. ABN Amro analyst Georgette Boele said “The sharp sell-off [Thursday] in the dollar gave a temporary boost to precious metal prices, but the recovery signals that the dollar rally is far from over. A higher U.S. dollar will be a major negative driver for precious metals going forward.”^[9] Meanwhile Sharps Pixley CEO Ross Norman said, “Speculative investors are quite clearly out of love with gold at the present time and as long as we have this meteoric rise in the U.S. dollar going on, it’s difficult to see a change in gold’s fortunes.”^[10]