Gold Bounces Back From Sell-off Ahead of Fed Minutes

Gold sold off in early trade on speculation ahead of the minutes report and Swiss gold vote.

Bullion.Directory precious metals analysis 19 November, 2014
By Christopher Lemieux
Senior FX and Commodities Analyst at FX Analytics

Gold and silver sold off in early trade on a stronger US dollar, but there is also speculation on the Swiss gold vote may be undermined by the Swiss National Bank (SNB). Market participants are trying to anticipate the FOMC minutes set to be released today at 2:00 PM EST. However, after being down more than $17 per toz., gold has bounced back and is down modestly.

Current polls for the Swiss gold referendum indicate that 47 percent of voters will vote “no,” but it still remains a close fight. The official vote will be held November 30, and a “yes” vote would require the SNB to carry 20 percent of its reserves in gold bullion, while having to repatriate gold held outside of Switzerland.

This could cause market turmoil, as the SNB would have to purchase over 1,500 tons of gold within the next five years.

The foreign-exchange market would see volatility, as well. It is likely that the SNB would sell euros and dollars in order to finance bullion purchases, and this could trigger a collapse in the EURCHF currency pair. Buying bullion would cause issues with the central bank when trying to create inflation. And, a stronger Swiss franc would make exports less competitive in an already struggling European economy.

Traders are trying to position themselves ahead of the FOMC minutes, too.

Now that the forth installment of stimulus is technically over, the Federal Reserve really has no other choice but to deliver a semi-hawkish outlook in order to keep confidence in the narrative that the US economy is actually stronger than it appears.

Although the Fed’s rhetoric is optimistic, recent data has been mediocre to outright estimate misses.

The US central bank said the hike in the Fed funds rate is “data-dependent,” which enables the Fed slack in determining when the hike will occur. However, many believe that the Fed is well-behind the curve, as it was in 2008, and should have nudged rates higher already.

The statement’s language will likely trigger strong moves preceding the minutes release. Expect the Fed to continue linking the interest rate bump to data-dependency and still a “considerable time” away.

If economists and the Fed deem the economy stronger, why has a rate hike yet to happen? Perhaps, everything is not as strong as it seems.

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