Comex Gold Stabilizes On Short Covering, Pares Loss After Post-FOMC Decline
New York (Sept 18) Gold futures stabilized as Thursday’s session wore on due to profit-taking and short covering, bouncing from the lowest level since early January after overnight selling in the wake of a U.S. Federal Open Market Committee meeting.
Some physical demand also emerged on the price pullback that began late Wednesday.
Before the comeback, gold fell after Fed commentary was construed to mean rate hikes in the U.S. just might occur faster in 2015 than the market previously thought, underpinning the U.S. dollar, analysts said. That hurt gold even though policy-makers otherwise said they would maintain low rates for a “considerable time” yet.
“Despite the language in the statement, it seems that the bank is preparing the market for higher interest rates, which can be seen as gold bearish,” said Rob Kurzatkowski, senior commodity analyst with optionsXpress. “Tying the interest-rate policy to the labor market potentially gives the Fed justification for deviating from its low interest policy if labor conditions improve.”
Around the 1:30 p.m. EDT close of the pit session on the Comex division of the New York Mercantile Exchange, most-active December gold was down $9, or 0.7%, to $1,226.90 an ounce. Spot metal was up $3.05 to $1,226.15 (the prices of spot and futures were not far apart, but the change for the day was since the closing times for the previous session are a few hours apart).
December silver was down 20.4 cents, or 1.1%, to $18.53 an ounce.
While weaker, December gold avoided further momentum-based selling, holding after hitting a low of $1,216.30 an ounce in electronic trading shortly before the open-outcry session began. This was the contract’s lowest level since Jan. 2.
“We pared the loss because people covered shorts ahead of the weekend,” said George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures. Short covering is when traders buy to offset positions in which they previously went short, or placed bearish bets, either to capture a profit or otherwise exit a trade.
He also cited an “extreme buildup” in puts, which “indicated to the traders that there may be extreme selling and pessimism already in the market.” Puts give the holder the right to sell at an agreed price during the lift of the options contract.
“We had such a big sell-off…and are seeing these fresh lows. So I think you are getting a little bit of profit-taking on this,” said Tommy Capalbo, precious-metals broker with Newedge.
Capalbo also cited “opportunistic buying,” with a pick-up in physical demand on the price retreat. Triland Metals reported that Shanghai gold premiums traded as high as $8 on “dip buying.”
“It’s attempting to make a little bit of a bottom. There does seem to be some interest, even though it did get hammered yesterday,” said one New York trader. “I think it’s just a reaction to its recent weakness.”
Gold was hurt during the last 24 hours as U.S. dollar strengthened. However, the trader said, the euro has since stabilized, likely helping gold stem its decline. The single European currency managed to edge up to $1.29122 from $1.28446 in late-Thursday North American trading.
“If the euro was getting hammered again, I imagine gold would be down by the lows,” the trader said.
Gold was sideways during Wednesday’s electronic session as traders marked time ahead of the FOMC outcome. Then, in after-hours screen trading, the metal began to slide even though a post-meeting statement said the committee would still be leaving interest rates low for a “considerable time” after the end of the bond-buying program known as quantitative easing.
However, in a press conference, Chair Janet Yellen hinted that the Fed could act sooner if economic conditions warrant, saying “I do feel we have the flexibility to move.” Also, the collective forecasts from individual Fed members suggested once they do start tightening, they might be doing so faster than previously expected. Their median projection for the federal funds rate at the end of 2015 was 1.375%, compared to 1.125% in June.
“Of course, higher rates mean a strong dollar,” Gero said. This tends to hurt gold due to an inverse correlation. “I also think higher rates are anti-inflationary.”
A number of traders have listed $1,200 as a key psychological downside level for gold. Kurzatkowski listed the next significant chart support for December gold at $1,185 and $1,075. The first level of $1,185 is where December gold held during the final day of 2013 before bouncing into 2014.
“The RSI (Relative Strength Index) is currently at oversold levels, which could be seen as supportive of prices in the near term,” he said.
U.S. economic data was somewhat mixed Thursday morning, with jobless claims stronger than forecast but housing starts and a Philadelphia Fed survey weaker than expected.
Housing starts fell 14.4% in August to a seasonally adjusted annual rate of 956,000 units, the Commerce Department said. Expectations were for around 1.04 million. However, the Labor Department said first-time weekly jobless claims fell by 36,000 to 280,000, when expectations were for around 312,000.
The headline index in the Philadelphia Federal Reserve’s manufacturing survey fell to 22.5 in September from a three-year high of 28.0 in August. Expectations were for around a 23.0 to 24.0 reading in September.
The lone U.S. economic report on the calendar for Friday is August leading economic indicators at 10 a.m. EDT.
Source: KitcoNews
