Dollar Remains Bid, PMs Suffer Near-Term

The US dollar remains bid as traders try to anticipate when the Federal Reserve will raise interest rates.

Bullion.Directory precious metals analysis 20 August, 2014
By Christopher Lemieux
Senior FX and Commodities Analyst at FX Analytics

Market participants expect the Fed to bump rates higher sometime in mid-2015, but the vagueness of the US central bank and their policies leave some worried about ongoing near-zero interest rate policies.

The precious metals markets do not take kindly to potential rate increases because it encourages traders and investors to withdraw from non-interest bearing assets, such as gold and silver.

However, as stated previously, gold did increase 57 percent when the Fed increased rates from 2004 to 2006.

If confidence erodes in central bank policies and leadership, precious metals can remain well supported.

Financial markets will look for indications on potential rate hikes in the upcoming July FOMC minutes tomorrow, as well as the annual Jackson Hole meeting, which will include a speech from Fed Chair Janet Yellen.

Yellen is a well-known ultra-dove, and a dovish tone in either the minutes or Jackson Hole speech could give a slight boost to metals. Although, traders need to heed the dollar’s momentum, which is currently trending in overbought territory.

The US dollar looks bullish on the weekly chart since breaking to the upside from a downward trending channel.

Price action remains near support at 81.50, and a push higher to 82 is in the works, where price could begin to see some resistance.

A break through resistance could push the dollar index to 82.18, whereas support can be found at 80.50 and 80.25 near-term.

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