Today’s Fed Decision Dictates Near-Term Future of Gold
Posted by Brian Ford on September 17, 2015
Gold jumped by more than $16 yesterday, rising 1.5% to $1,119 per ounce, as the world awaits a looming interest rate decision by the U.S. Federal Reserve. This is the highest the precious metal has been in a week, and while there are many factors that generally go into its price movement, right now the only thing that matters is the “will they or won’t they?” speculation.
The uptick in gold is another clear signal that most believe Reserve Chair Janet Yellen will delay a hike until at least December. This comes on top of just released results that consumer prices dropped in August for the first time in seven months and inflation remains below Yellen’s 2 percent goal. And then of course there is the ongoing economic slowdown in China, low commodities prices, and falling currencies throughout the emerging markets.
All combined, this has led many analysts to conclude that the Fed will end its meeting today without moving the interest rate, thereby setting the stage for a major gold rally over the next few months as investors look for safe havens. “The prospect of a Fed rate hike is still very low, so things are reacting the way you’d expect them to react if there’s no hike,” Dave Meger, director of metals trading at High Ridge Futures in Chicago, told the Wall Street Journal.
A report by FX Street states that no move from the Fed could push gold back towards its recent high of $1,170, especially since the metal has already “surged through the top of its nearly 1-month descending wedge pattern,” which Forex senior market analysts Matt Weller concludes “has bullish implications.”
Bruce Kamich of The Street has more good news. His six-month look at gold prices show a “double bottom” pattern in which the December futures were higher in the second bottom in September than the first in July. This signals a looming reversal, says Kamich. “This current move up in gold could extend well into the fall and will convince skeptics as it moves up,” he wrote.
Still, all the speculation is just that until the Fed makes a move — or, hopefully, doesn’t. Today is judgement day, and while gold can survive a meager rate raise (the most anyone expects), it will get a big boost if Yellen chickens out and keeps interest at zero.
And if it were up to Ben Walsh of the Huffington Post, today’s decision will come and go without any change. “Normalizing policy just to be normal is an outright abdication of courage and credibility, and raising rates so you can cut rates is a bit like gaining 20 pounds so it’s easier to lose 15,” wrote Walsh. “There isn’t a compelling reason to raise rates. Doing so now would be a surprise and a mistake.”
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