Gold price relatively flat, as traders digest hawkish comments from Fischer
New York (Aug 31) Gold futures fell mildly on Monday amid a relatively flat dollar, as investors digested predominantly hawkish comments from Federal Reserve vice chairman Stanley Fischer over the last several days on an increased possibility of a September interest rate hike.
On the Comex division of the New York Mercantile Exchange, gold for December delivery traded in a tight range between $1,125.00 and $1,134.70 a troy ounce, before settling at 1,133.00, down 1.00 or 0.09% on the session. For the month of August, however, gold futures gained more than 3.5% erasing nearly all of its losses from a massive July swoon. The precious metal suffered a 10-day skid in mid-Summer, its worst romp in nearly two decades, as it fell at one point to its lowest level since the Financial Crisis.
Gold likely gained support at $1,108.50 the low from August 18 and was met with resistance at $1,160.10, the high from Aug. 23.
Metal traders reacted to strong comments from Fischer on the potential that the Fed could raise short-term interest rates next month on the first day of trading since the influential policymaker's market-moving comments over the weekend. Appearing at the Federal Reserve Bank of Kansas City Economic Symposium in Jackson Hole, Wyoming, Fischer indicated that there is good reason to believe that inflation will move higher as the temporary forces restraining it continue to "dissipate further." Core PCE inflation, the Fed's preferred gauge of price increases, has remained under its long-term targeted goal of 2% for every month over the last three years. The core reading of inflation strips out the heavy impact of food and energy prices.
During Fischer's address on U.S. Inflation Developments, the Fed vice chair blamed plunging energy prices, a stronger dollar and a soft commodities market for creating downward pressure on inflation. Fischer noted that a rise in the dollar by "17% in nominal terms," over the last year could restrain U.S. GDP growth through next year and possibly into 2017. Fischer also described the crash in energy prices as a "one-off" event, even as U.S. crude futures hover near six and a half year lows. Fischer, however, added that energy markets do not expect crude prices to fall sharply in the near future and their influence holding down inflation should be viewed as transitory.
The Fed is also keeping a close eye on slack in the economy and labor market as it decides whether to raise short-term interest rates for the first time in nearly a decade. A gradual reduction of slack is typically associated with less downward pressure on inflation. Labor market slack is defined as the quantity of unemployed resources such as labor and capital that can be implemented differently, but is not being utilized effectively. In June, the Fed's Survey of Economic Projections forecasted that Core PCE inflation will rise to a level between 1.6 and 1.9% in 2016 from its current level of 1.2%. By the end of 2017, analysts expect core inflation to reach between 1.9 and 2.0%, according to the survey.
In Wyoming, Fischer emphasized that the Fed should not wait until inflation moves back up to 2% to begin raising short-term rates. On Friday, Fischer indicated in an exclusive interview with CNBC that recent U.S. economic data had been impressive, providing a compelling argument for short-term rates to head in a higher direction.
Gold, which is not attached to interest rates or dividends, struggles to compete with high-yield bearing assets in periods of rising rates.
Silver for December delivery gained 0.061 or 0.42% to 14.615 an ounce.
Copper for December delivery fell 0.036 or 1.33% to 2.338 a pound. On Monday, the Shanghai Composite index ended the month of August down 12.5%. China, the world's largest consumer of Copper, accounts for nearly 40% of global consumption.
Source: Investing.com
