Gold Prices Rise Ahead of Fed Meeting

Meanwhile British Business Confidence Falls ‘Through the Floor’ after UK Election

Bullion.Directory precious metals analysis 12 June, 2017
By Steffen Grosshauser
European Operations Executive at Bullion Vault

Asian and European stocks were dragged down as a sell-off in US technology shares spread. The pan-European Euro Stoxx 50 was down 1% with the European tech sector heading for its worst decline since October 2016.

The US Dollar Index fell against a basket of other major currencies on Monday morning following its rise to a 9-day high of 97.50 on Friday. The British Pound, meanwhile, continued its fall while British Prime Minister Theresa May tries to remain in power by striking a deal with Northern Ireland’s Democratic Unionist Party. When the unexpected election results were published last Friday, Sterling crashed by as much as 2.5% – its biggest drop in eight months.

British business confidence has fallen “through the floor” since then, as business leaders expressed deep concerns over the political uncertainty and Theresa May’s weakened position ahead of the Brexit talks, seeing “no clear way to resolve the political impasse quickly”, according to a snap poll by the Institute of Directors (IoD).

Investors are now focusing on the upcoming 2-day Federal Open Market Committee (FOMC) meeting which starts on 13^th June looking for hints of its interest rate projections. Earlier this year, the Federal Reserve announced there could be three or four rate hikes this year. The central bank is widely expected to raise interest rates by 25 basis points this week, but a recent weak run of US inflation data and a lack of progress on the Trump agenda has caused doubts among market observers that the Fed’s 2% inflation goal will be met by the end of this year.

Gold, meanwhile, edged up to $1269 per ounce on Monday morning after it closed at $1266 last week shedding around 1% in the previous session – the biggest intraday-decline in 3.5 weeks – and falling below the $1276 support level, according to Scotiabank’s daily market commentary on Friday. The metal rallied to a 7-month high of $1295 last Tuesday when it seemed set to breach a 6-year downtrend drawn from its all-time high in 2011.

In contrast to gold, silver was slightly down from $17.21 to $17.11 per ounce, while platinum ticked around 0.5% higher and palladium traded around $900 again. After palladium leaped more than 7% to a 16-year record of $928 on Friday, the metal was up 30% this year, beating 33 other raw materials, according to Bloomberg.

“The palladium market is experiencing a short-squeeze which we believe is driven by investment demand rather than industrial demand,” said analyst Carsten Menke at Swiss private bank Julius Baer.

“Eventually, the weaker demand backdrop from automotive catalysts should be reflected in deteriorating sentiment and falling prices. We remain bearish and stick to our short-recommendation.”

Looking at the Comex palladium futures and options last week, the net long position of the ‘managed money’ category (which mostly represents hedge funds) was increased 26% – its first gain after decreasing 4 weeks in a row, whereas the net long position of Comex gold increased by further 32% to reach its highest since last year’s US presidential election.

The world’s biggest state investors hoarded additional 377 tonnes gold to their existing reserves last year, pushing the public sectors’ reserves to a 18-year high,” according to a study of 750 central banks, public pension plans and sovereign wealth funds.

“Last year’s key drivers were market volatility, the shock of the Brexit vote and the uncertainty in the run-up to the US presidential election,” explained Chris Mellor, executive director at London-based ETF provider Source ETF.

“Political and economic fears continue to worry investors in 2017.”

The price of the crypto-currency Bitcoin, meantime, traded above $3000 per unit for the first time on Sunday, pushed by an increased demand from Asian-based investors, according to the CoinDesk Bitcoin Price Index (BPI).

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