Gold Slides As Fed Officials Sound More Hawkish Than a Week Ago
Here is the opening of this topical article from Kitco:
(Kitco News) - Federal Reserve officials are not sounding as dovish as a week ago, and gold has taken a blow to the chin as a result.
Policymakers were deemed as dovish by markets last week when they left interest rates unchanged after a two-day meeting. More significantly, the so-called “dot plot” showing views of individual policymakers suggested they collectively anticipated just two rate hikes in 2016, down from the four projected back in December.
However, this week, several officials have made comments showing rate tightening remains on their minds, most recently St. Louis Fed President James Bullard in an interview with Bloomberg early Wednesday.
“That changes the narrative,” said Bart Melek, head of commodity strategy for TD Securities.
“We’re having a price tantrum because of Fed speakers, for the most part,” said George Gero, managing director with RBC Wealth Management, calling this “worrisome” for gold.
“The Fed speakers seem to ask for rate hikes sooner rather than later, while the rest of the world is talking about negative rates, all of which means strength in the dollar,” Gero said.
Bullard said policymakers should consider hiking rates at their next meeting, suggesting there is a risk in overshooting inflation. “You get another strong jobs report, it looks like labor markets are improving, you could probably make a case for moving in April,” Bullard said.
Meanwhile, a normally dovish Fed member – Chicago Fed President Charles Evans – said Tuesday he expects to see two rate hikes this year. Philadelphia Fed President Patrick Harker said “there is a strong case that we need to continue to raise rates.” And, on Monday, Atlanta Fed President Dennis Lockhart also suggested the U.S. could be in line for another hike as soon as April.
The pressure on gold was exacerbated as sell stops were triggered below roughly $1,250 and $1,225 an ounce, Gero added. Stops are pre-placed orders activated when certain chart points are hit, typically to either lock in a profit or limit a loss.
Additionally, many traders may be exiting positions ahead of a long Easter weekend, Gero said. Meanwhile, as prices fell, there was some caution about when to buy, Gero related.
“Let’s face it – nobody wants to catch the falling knife,” Gero said. “People are holding off on bargain hunting until they see clarity.”
The article is about gold but other precious metals fell even more sharply today. The Fed’s mood has changed since stock markets rallied sharply from their mid-February lows, mainly on short covering, plus the re-establishment of some long positions. More recently, those stock market rallies have been losing momentum and improved investor sentiment could prove to be ephemeral.
I expected precious metals to be steadier but they have had a good run recently and are now faltering near some previous resistance levels. Today’s weakness in crude oil near the MA has not helped sentiment in the commodity sector.