Gold bouyed by market uncertainty, forecasts of slower US rate hikes

Jan 29, 2016 - 3:29 AM GMT

The gold price inched higher during Asian trading hours on Thursday supported by market uncertainties, as well as expectations of slower future Fed rate hikes.

Spot gold was last at $1,115.20-1,115.50 per ounce, up $1.50 from Thursday’s close. Trading ranged at $1,113.50-1,116.80 so far.

Gold had hit a 12-week high of $1,128.20 during US trading on Wednesday and has since eased on profit-taking.

Gold should find support at the breakout level of $1,110, and below there, the 100-day moving average at $1,107, said MKS Group on Friday morning.

While sentiment is improving across commodities, “the question now is whether a rebound in other markets now weighs on gold or if gold will be carried along if long-term investors get [friendlier] towards commodities,” William Adams, head of research at FastMarkets said in a note on Thursday. 

“Given gold prices are only eight percent above their December lows, we would not be surprised if they continue higher.”

Benchmark crude oil prices had rallied to a three-week high overnight after Russia suggested that OPEC and other producers may meet to discuss production cuts. But oil gave up some of the gains after OPEC delegates said there were no plans to hold talks.

Still market watchers remain sceptical that production cuts will be instilled in the oversupplied oil market.

“We think the likelihood of an agreement between [oil] producers is extremely low. In the absence of a supply cut, there is further downside risk to prices in the short term,” said ANZ Research on Friday morning.

The spot Brent crude is down 0.68 percent to $35.10 per barrel, while the Texas light sweet crude fell 0.03 percent to $33.50 so far on Friday during Asian trading hours.

Market participants are anticipating a more gradual path of policy tightening in the US as the Federal Reserve kept interest rates unchanged on Wednesday, while adding that it was “closely monitoring global economic and financial developments.”

Benchmark Treasury rates have quickly downgraded the outlook for potential rate hikes in recent weeks, with markets and consumers recognising an especially weak outlook for price growth, which is incongruous with tightening monetary policy, said Ben Garber, economist at Moody’s Capital Markets Research.

“Markets project that even one further lifting of the fed funds target this year will come with great difficulty, and that the Fed’s own projected pace of four hikes this year is a near impossibility,” he said in a Thursday report.

“If the global macro picture means a second [rate] rise is delayed, some weakness may be seen in the dollar once geopolitical tensions ease. If so, gold and other commodities could get some lift, which could trigger short-covering,” added Adams.

In US data released on Thursday, core durable goods in December at -1.2 percent missed the estimate of -0.1 percent durable goods orders at -5.1 percent was sharply below the forecast -0.6 percent.

US weekly unemployment claims at 278,000 were better than the forecast 281,000 and below the psychological 300,000 mark.

Other US data due later on Friday includes advance GDP, advance GDP price index, employment cost index, goods trade balance, Chicago PMI, revised UoM consumer sentiment and revised UoM inflation expectations.

In equities, the Dow Jones Industrial average closed 0.79 percent higher at 16,069.64 on Thursday, while the Shanghai Composite is so far up 2.21 percent to 2,714.276 on Friday.

In currencies, the US dollar index is down 0.02 percent to 98.63 so far on Friday.

In other precious metals, silver fell $0.005 to $14.235/14.255 recently.

The silver market was thrown into disarray during US trading on Thursday after the LBMA Silver Price settled 84 cents or six percent below the spot and futures price in the morning.

The LBMA Silver Price – the crucial daily benchmark used by producers and traders around the world to settle silver products and derivatives contracts – was set at $13.58 per ounce.

This had left market participants confused, with a CME spokesperson saying that the low LBMA Sliver Price was not the result of a system error.

Platinum was up $2 to $863/868, while palladium rose $4 to $492/$497.

On the Shanghai Futures Exchange, gold for June delivery was unchanged at 238.45 yuan per gram, while June silver was flat at 3,335 yuan per kilogram.

(Additional reporting by Tom Jenneman)