Gold News

September Fed Rate-Hike 'Now 50-50', Rising Dollar Hurts Gold Investment But 'Crowded Trade' Warning for Bears

GOLD INVESTMENT prices fell against a rising Dollar on Tuesday in London, as attention switched from the latest resolution of the Greek debt crisis to the US Federal Reserve's planned interest rate hike in September.
 
World stock markets extended yesterday's gains, as details of Athens' proposals to Greece's Eurozone and IMF creditors showed the left-wing Syriza Party agreeing to raise taxes and cut pension costs, but without gaining any write-down or restructuring of the €242 billion in bail-out loans made to date.
 
Gold priced in Dollars fell over $10 per ounce, extending its drop from the weekend's closing level of $1200 to more than 2%.
 
Investment gold prices rallied fast for Euro traders, however, recovering all of Monday's 1.8% loss near 5-month lows as the single currency fell sharply on the forex market.
 
"The FOMC meeting last week gave a short relief to gold bulls," says one London bullion bank's trading desk, "and proved a very tough time for short [bearish] positions.
 
"[But] the market is now clearly pricing a rate hike for Sept 2015," it goes on, cautioning options traders wanting to bet that gold prices will fall if the Fed does then raise rates that puts are currently "richly" priced.
 
"Beware the crowded/expensive trade here."
 
"I don't think the odds [of a September rate hike] are 100%," said US Fed voting member Jerome Powell in a speech Tuesday, but with odds "nearer 50-50" he still sees a second hike then coming in December, he added.
 
"The view in the market," Bloomberg quotes one trading strategist, "is that policy divergence between Europe and the US will continue," helping drive the single currency lower as the European Central Bank applies its quantitative-easing bond buying, "weakening the Euro."
 
Short term, this week's economic data bring "a few numbers to move the Dollar around and in turn, move gold," says David Govett at London-headquartered commodity brokers Marex Spectron.
 
But overall, "the current conditions will continue...with thin, disinterested markets.
 
"Continue to trade the range and watch the Dollar."
 
Gold investment holdings through the giant SPDR Gold Trust (NYSEArca:GLD) rose Monday for the first time in almost four weeks, adding 0.5% to the bullion needed to back the trust fund's shares in issue from last week's new 7-year low of 701 tonnes.
 
Silver bullion held to back the iShares Silver Trust (NYSEArca:SLV) fell in contrast, dipping 0.3% from an 11-week high of 10,198 tonnes.
 
"The stronger US Dollar remains a headwind for the precious metals complex," say analysts at US investment bank – and now London benchmark gold price participant – Morgan Stanley.

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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