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Gold Investors To Brood Next Week, Waiting For March Rate Hike


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Gold Investors To Brood Next Week, Waiting For March Rate Hike

Neils Christensen

Friday March 03, 2017 14:37

Kitco News

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(Kitco News) - Not only is gold ending its four-week winning streak but the market is seeing its worst weekly loss in almost four months and analysts warn that the trend is not likely to change with sky-high expectations of an interest rate hike in less than two weeks.

April gold futures settled the week at $1,226.5 an ounce, down almost 2.5% from the previous week.

But it’s not only gold that is suffering this week. The silver market is ending its first week of the year in negative territory, halting it nine-week winning streak. March silver futures settled Friday at 17.697 an ounce, down almost 3% from the previous Friday.

The biggest drag on the precious metals market has been an extreme shift in expectations of interest rate hikes.

March Rate Hike Seen As A Done Deal

At the start of the week CME 30-Day Fed Fund Futures were pricing in a 30% chance of a rate hike; however, following hawkish comments from New York Federal Reserve President and vice-chair of the Federal Open Market Committee William Dudley, markets started to raise their expectations for a March move. By the end of the week Fed Chair Janet Yellen, in her much anticipated speech at The Executives' Club of Chicago, all but guaranteed a move at the next week.

“"Indeed, at our meeting later this month, the committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate," she said.

As of late Friday, markets are now pricing in an 82% chance of a rate hike. The high probability of a rate hike does not bode well for gold; analysts don’t see much potential as investors will have another week to brood about the yellow metal’s fate as the U.S. central doesn’t meet until March 15.

Big Picture: March Rate Hike Not Bad For Gold

In an interview with Kitco News, Eugen Weinberg, market analyst at Commerzbank said that he is bullish on gold because he is bearish on everything else. But he added that he can’t ignore the current short-term trend.

“Gold tends to get weaker ahead of Fed rate hikes but its only short-term weakness,” he said. “I could see gold dropping below $1,200 in the near-term.”

Despite the short-term weakness, Weinberg said that there are still a lot of strong hands hold on to their gold, which is positive for the precious metal this year.

“Investors holding on to gold are not focused on the Fed rate hikes. They are focused on real rates, which are expected to remain low as inflation is likely to continue to pick up.”

Christopher Vecchio, senior currency strategist at DailyFX agreed that gold could struggle in the near-term; however, he likes the yellow metal as a long-term play. While markets are pricing in a March rate hike, the forecast for the number rates this year hasn’t increased.

“We are only seeing the timing shift and not the trajectory in rates and I think that will be good for gold,” he said. “Once we get through the March 15 meeting, I think we could see gold rally again.”

Levels to Watch

According to analysts a key support level to watch in the near-term will be $1,220 an ounce, which was a major resistance point as gold pushed off its December lows. The $1,220 area also represents gold’s 100-day moving average.

The market has already pushed below initial support at $1,226.60 an ounce, which represents the 38.2% retracement level between the highs in July and December’s lows.

Also on the downside, analysts say they are keeping an eye on the 50-day moving average, which comes in at $1,205 an ounce.

The Final Say

With such high expectations of a March rate hike some analysts say that major data next week -- February’s nonfarm payrolls report -- won’t have a major impact on prices.

“I don’t think even a big miss in employment is going to shift market expectations,” said Phillip Streible, senior market analyst at RJOFutures.

While investors have to wait until March 15 for the Fed’s monetary policy meeting. They can tune in Thursday for the European Central Bank’s monetary policy decision.

Aside from Friday’s employment report, next week will be relatively light for U.S. economic data so be sure to stay tuned to Kitco News for coverage of Prospectors and Developers Association of Canada conference, the largest mining conference in North America.

By Neils Christensen

For Kitco News


Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.