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LAWRIE WILLIAMS: $1250 gold - thou shalt not pass

Gold has spent much of the past week or so bouncing up against the $1,250 level but has not been allowed to break through it in any significant manner so far.  Every time the $1,250 level has been breached marginally the yellow metal has been brought back down sharply.  It presumably is waiting on the U.S. Fed’s latest interest rate decision due later today and/or the Fedspeak language accompanying whatever decision is made on the likely perceived path of Fed intervention next year.

Up until a couple of weeks ago it seemed to be a 100% certainty that the Fed would indeed tighten by another 25 basis points at the FOMC meeting taking place yesterday and today.  Now the markets are not so sure although most observers put the probability of the Fed raising rates at the current FOMC meeting as greater than 50%, given the various sharp selloffs in the U.S. equities markets and a plea from President Trump not to raise rates.  

Whether the Fed will take any heed from the latter is debatable in that it may be keen to demonstrate its independence from the Administration, which might be dangerous policy given the seemingly trigger-happy President who could influence the Fed’s future make-up, or existence even.

But, of course, it’s not only gold and the other precious metals which are anxiously awaiting the Fed’s pronouncement.  U.S. equities had a hugely turbulent day yesterday with all three major indices eventually closing up - marginally - after spiking very much higher in early trading and then losing all of the earlier gains and moving into the red, before just about ending the day in positive territory with a small recovery.  Equities have been having one of the worst Decembers on record - they are currently heading for the worst December performance since 1931!

And it’s not only U.S. equities following such a nervous path.  Asian and European markets have been showing similar tendencies.  What will be worrying for the U.S. investment community is that Japan’s Nikkei index closed down overnight after some big swings in yesterday’s trading.  European markets are up this morning, but this could all change depending on indications coming out of the Fed meeting.  The dollar index has been falling, although not that significantly so far.  That is probably the reason why the gold price has been stronger.

So what lies ahead?  As commentary on the site puts it today’s Fed decision could create some real volatility and price swings if in fact the Fed raises rates and at the same time balances that decision with a much more dovish demeanour regarding their monetary policy next year which many Fed followers suggest may well be the case.

In our view, if the Fed does not increase rates equities and gold could both soar.  As far as the latter is concerned this could be the catalyst to take gold up to the next resistance level - seen as around $1,275 or even higher.  But even a ‘dovish’ statement out of the Fed regarding the likelihood of a reduction in its 2019 proposed interest rate increase programme could have a similar effect given that this could have a negative impact also on the U.S. dollar index.  But this is all speculation.  We shall have to wait for the Fed decision and accompanying statement to see what happens in the event - but we suspect that this is likely to be positive for gold and the other precious metals in one way or another.  So perhaps gold remaining under $1,250 may not survive today - or perhaps tomorrow.

19 Dec 2018 | Categories: Gold

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