Gold Traders To Eyeball Data For Next Fed Move

San Francisco (Sept 23)  Now that markets assume there won't be any Federal Reserve rate hikes until December at the earliest, gold traders will be on the lookout next week to see whether upcoming economic data leaves policymakers afraid to act once again as the year winds down.

Other factors that potentially could influence gold in the week ahead will be positioning or profit-taking ahead of the end of the quarter and month, plus the first debate between party nominees in the U.S. presidential election.

Participants in the Kitco News gold survey look for higher prices next week, with a majority of both Wall Street and Main Street voters bullish. Gold rose this week as the Fed left rates unchanged. As of 2:03 p.m. EDT, the Comex December contract was up $29.90, or 2.3%, since last Friday at $1,340.10 an ounce.

Despite some of the recent hawkishly construed rhetoric, policymakers voted this week to leave the Federal funds rate unchanged, as they have every meeting since last December. However, more officials favored a hike than over the last two years, as the vote was 7-3.

The Federal Open Market Committee meets two more times this year – Nov. 1-2 and Dec. 13-14. Most pundits doubt the Fed would change rates in November to avoid looking political in the week before the U.S. presidential election, so now traders are trying to gauge whether policymakers will hike in December.

Officials have hinted at a hike, with the so-called dot-plot this week showing most policymakers favor an increase yet this year and Chair Janet Yellen saying in her news conference that "the case for an increase has strengthened." Yet, the Federal funds futures show a market nearly evenly split on the chance of a hike in December. So now, market participants begin monitoring data yet again to see whether it's a go or no for policymakers.

"With the Fed having decided to keep rates unchanged, it (the market focus) is going to be macroeconomic data and Fed commentary over the coming week and … whether the Fed will be on target to raise in December, which will be the first opportunity after the U.S. elections in November," said Robin Bhar, metals analyst at Societe Generale.

Bart Melek, head of commodity strategy with TD Securities, also suggested that U.S. economic data will be foremost on traders' collective minds.

"Weaker data means less likelihood of aggressive, hawkish policy, and strong data means you are going to get a bit more hawkish (Fed) more likely to increase interest rates," Melek said.

A more dovish Fed tends to support gold, while a hawkish Fed tends to undercut prices, at least in the short term.

Key reports will include new home sales on Monday, consumer confidence Tuesday, durable goods Wednesday and weekly jobless claims and gross domestic product Thursday. In particular, durables will give the market clues on the health of the U.S. manufacturing sector, which has shown signs of softening lately, Melek pointed out. Next Friday brings personal income and spending, the Chicago Purchasing Managers Index and consumer sentiment. Melek added traders will be watching the personal consumption expenditures price index. This is included in the monthly report on personal spending has long been thought to be a favored inflation gauge of the Fed.

Meanwhile, Sean Lusk, director of commercial hedging with Walsh Trading, figures the approach of the end of the month and quarter on Sept. 30 could impact the price action -- leading to potential selling of gold futures in the form of profit-taking. This especially may be the case if December gold cannot climb through a double-top on a daily price chart in the $1,357 area after the Federal Reserve left interest rates unchanged this week, he said.

"If we can't get above it, some longs might get frustrated, especially the ones that got long post-Fed meeting," Lusk said.

However, if gold does pull back, others suggest buyers may quickly emerge. The main factor that has kept gold from rising still higher this year has been fears of Fed tightening of monetary policy, and now the market likely has a couple of months before officials would consider hiking again, said Bob Haberkorn, senior commodity broker with RJO Futures.

"The sentiment seems to be a buy-and-hold mentality right now in this market," he said. "If anything, if there are any dips, I think you will see them short-lived and as buying will come in on dips."

Analysts offered a mixed assessment of how Monday's night's first presidential debate between Republican Donald Trump and Democrat Hillary Clinton will affect gold. Some said it likely won't matter; others cited potential for this to affect the dollar and thus gold due to the inverse relationship between the two markets.

"Unlike the primaries, presidential debates tend to be an exercise in restraint and capturing the middle-of-the-road voter," said Credit Agricole in a research note. "However, this election is far from usual and the scope for stronger rhetoric is clearly higher.

"The announced topics areas for Monday's debate appear sufficiently broad to suggest there will be a discussion of some of the more contentious issues surrounding economic policy, international trade and immigration. FX markets will be sensitive to any further escalation of protectionist rhetoric."

Source: KitcoNews