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Gold Rally Halts as New Hopes of Fed Hike Emerge
By Isaac Ndegwa
Gold has seen its rally halt after making a four day winning streak. The new changes have come as a result of the dollar rebounds after a senior fed policy maker said that the state of the US economy can warrant interest rate hikes soon. Williams suggests that waiting any longer before increasing the rates could be too damaging for the US economy as the already high inflation may increase and asset bubbles may also emerge. The gold bullion available for immediate delivery is trading at $1,345.80 for an ounce while it had been trading at US 1,348.50 just some hours earlier. The metal therefore trades at 1% higher in this week’s trading alone. Fed’s Williams says the economy is better off with gradual rate increases
The fed has been very hesitant to raise the interest rates in 2016 and that has proven to be much of a boost for the gold prices. Gold has gained 27 percent this year but the recent comments by Williams show that the FOMC minutes released a day earlier do not completely write off the likelihood of rate hikes before the year ends. The fresh hopes have made the dollar gain substantially in this Friday’s trading. John Williams (President of the Fed Bank of San Francisco) explained that the USA will be better off with a gradual increases over time, with the rate hike modalities starting sooner. Traders are still waiting for further comments from the Federal Reserve Chair Janet Yellen who is scheduled to speak on August 26th at Jackson Hole, Wyoming.
Risk off sentiments in the markets make gold lower
Gold had really few supportive factors and other than fresh demand for commodities in the Far East. The price has been weighed down with a rally in riskier assets as talks of rate hikes keep on catching momentum after the Fed comments. Net long positions in gold have kept on reducing for the last month or so, all giving a slight hint that even with the better prices, the buying pressure was reducing. During the week ended August 9th, gold futures registered at 255,773 contracts. That was a 4.3% drop from the most recent reading.
It has been a mixed two weeks as there was initial optimism over a rate hike as early as September when Feds Dudley suggested tightening in September. That was mid-this-week eroded when FOMC minutes implied that there is a more dovish approach being taken. Today’s comments by Williams have brought back more optimism of rate hikes yet again.
In China, 99.99% purity bullion fell 0.1%, trading at 288.66 Chinese Yuan. The Shanghai futures exchange saw the same trend as the gold for december delivery dropped by 0.4% to trade at 4366 Yuan per Kg.
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By Isaac Ndegwa
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