Gold Shrugs Off Higher Fed Funds Futures... Can The Divergence Last?

London (May 21)  Gold and the gold ETF (NYSEARCA:GLD), as I predicted last week, have enjoyed positive returns. GLD was up 1.7% to finish off the week, while spot has enjoyed 2.2% to the upside from 1227$/oz to 1255$/oz. The gold bears remain wary, and are beginning to warn of a decline into the June Fed meeting. While I will probably agree with them eventually, I think the call is too early, and I think we will be seeing another green week for gold ahead.

To analyze the recent price action for gold, I'll be talking about recent factors influencing the price. This includes: Federal Reserve policy involving interest rates and the balance sheet, political shenanigans and volatility, dollar movements, and fed funds futures expectations.

These may work in concert or against each other every day to ultimately determine most of the movement in the overall market price for gold. I'll also provide a bit of technical analysis for those wishing to trade (NYSEARCA: JNUG) or enter into short-term positions.

Interest Rates

Of course, the most important factor weighing on the price action for gold is due to the expectations of an interest rate hike in June. If we look at the CME Group's FedWatch Tool, the market now thinks that there's a 78.5% chance for a hike. This is up from Thursday's 73.8%, and also higher than 69.2%, the probability of a hike assigned by the market a week ago on May 12.

Source: SeekingAlpha