first majestic silver

Gold Heads Into Month End Watching FOMC, US Dollar

October 24, 2014

New York (Oct 24)  October so far as been a treat for gold bulls, with the market rising smartly off an early-month sell off, but the Federal Open Market Committee meeting and movements in the U.S. dollar will decide whether Halloween has any tricks for the yellow metal.

December gold futures rose Friday, settling at $1,231.80 an ounce on the Comex division of the New York Mercantile Exchange, but were down 0.58% on the week. December silver rose Friday, settling at $17.182 an ounce, down 0.86% on the week.

In the Kitco News Gold Survey, six participants see higher prices, nine see lower prices and six see prices trading sideways or are neutral. Market participants include bullion dealers, investment banks, futures traders and technical-chart analysts.

Gold rose to its highest level since Sept. 10 earlier this week, rising to $1,255.60, but backed off as the week ended. Physical buying ahead of the Indian Diwali holiday helped push gold to its upper levels, along with some short-term technical-chart related buying, but gold’s inability to build on those gains caused the market to retreat. Additionally, European bullion dealers said with India closed for the holiday, it took out a chunk of physical interest.

“From September to about Monday, demand was relatively ok, but next month is November and I hope for a demand pick up. Christmas is around the corner!” said a European gold dealer.

One New York trader said the gold forward rates fell on Friday, which is a sign of some physical demand coming back. “I’m going to watch this on Monday, to see if this demand holds up. We couldn’t take gold over $1,250, but we could get some further demand if prices fall back. I’m watching $1,215 for support. This is going to be key for gold,” he said.

Several traders said trading in the gold market could be light in the early part of the week. On Sunday, the European Central Bank will release results of the eurozone’s bank stress test to see which of the 130 biggest banks failed. Bloomberg reported Friday that the ECB is likely to fail 25 lenders, with 10 of those needing capital infusions. The results could change before Sunday, the Bloomberg story said.

Daniel Pavilonis, senior commodities brokers at RJO Futures, said given the economic problems in the eurozone, it could mean that the ECB will have to increase the size of their planned asset-backed securities program.

“If they have to buy more that will weaken the euro and strengthen the dollar which will be negative for gold,” he said.

However, Pavilonis said, with the FOMC meeting Tuesday and Wednesday, it’s unlikely gold prices will move much in the beginning of the week.

“Next week there’s a lot coming out, so people won’t be fully in the market. They’ll want to hedge with a little gold, in case things go bad, but not too much,” he said.

FOMC is widely expected to end its asset-back purchase program next week at their meeting; however, the big focus of the meeting will be any discussion of the Fed’s outlook on economic conditions. There is some debate over what the Fed might say.

Analysts at Nomura suggested the Fed will acknowledge concern about the potential impact of the recent tighter financial conditions. “However, we do not expect the FOMC to change its policy guidance at this meeting, but rather in December,” they said.

Other analysts, such as Millan L. Mulraine, deputy head, U.S. research and strategy at TD Securities, said the Fed needs to balance how they prepare for any policy tightening next year, but also avoid been seen as “divorced” from the rest of the world that is concerned about falling economic growth. That could mean a more dovish Fed meeting, he said.

The FOMC meeting will give some direction to the U.S. dollar, which has gained on ideas the Fed may start to tighten interest rates sometime next year, and the greenback’s strength has weighed on gold. Brian LaRose, technical analyst at United-ICAP, said gold’s dependency on the direction of currencies will persist.

“If the dollar index and the USD/JPY are headed to fresh highs, there is a good chance gold is headed to fresh lows. So all eyes on the currencies,” he said.

LaRose said support for gold comes in at $1,219.50 and $1,211, while resistance is at $1,254 and $1,265.

Charlie Nedoss, senior market strategist at LaSalle Futures Group, said it was a little disappointing for bullish traders to see gold fall through the 50-day moving average at $1,244.60 and the 10-day moving average of $1,239.10 this week.

“So we held the 20-day at $1,225.90, so on a daily chart it’s an OK close. But if gold goes below there next week, we could see a quick test of $1,200,” he said.

Source: KitcoNews

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