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LAWRIE WILLIAMS: Gold closes the week below $1,160. Where to now?

We warned about a bumpy ride for gold investors as the latest U.S. Federal Open Market Committee (FOMC) meeting looms.  (See:  Gold back on the Fed grindstone).  This time around, after 12 months of prevarications, the odds are hugely in favour of an interest rate rise being implemented following the meeting which takes place next week – on December 13th and 14th.  Indeed it would be a huge surprise if rates remain unchanged given government statistics suggest that the US economy is strong enough to sustain what is likely to be another very small increase in rates – probably another 25 basis points.  The likely effect on other global economies, which are struggling, is rather less certain.

After holding in the $1,170s for much of the past couple of weeks, the price dropped sharply on Friday, ending the week at a shade under $1,160

What the analysts will be waiting on though is whether the post FOMC statement will give any indication of further rises ahead (seen as perhaps more likely under a Trump Presidency – even though the Fed is supposedly apolitical).  And, if such a prediction is made, whether it will give any guidance as to the likely levels of such increases.  It should be recalled, though, that last December the Fed was predicting three or four increases in 2016, but economic indicators proved to be non-conducive.  Fed decisions are very much data driven and who knows what Trump’s initial days in office, given his assumed unpredictability and predilection towards controversial tweeting, will do to the markets once he is in place in a little over a month’s time?

But the gold price remains vulnerable, even at current levels, up until the FOMC decision day, but should settle down again thereafter.  Observers will be watching the reaction on the ETFs, which have been bleeding gold ever since the Presidential election results, led very much by the heavily publicised decision by Stanley Druckenmiller to sell all his gold holdings following the immediate gold price surge as it became clear Donald Trump was going to win the Presidency.  GLD, the biggest gold ETF, has given up 92.2 tonnes since the election date although is still 215 tonnes up on the year to date.  It dropped a further 3.26 tonnes on Friday.

The above has all occurred despite consistently higher benchmark dollar prices being set on the Shanghai Gold Exchange – mostly at a premium of $20 or more to New York and London.  Given that China remains the world’s largest physical gold market this does suggest some hope for the gold bulls, although it is apparent that for now the largely paper gold futures markets in the U.S. and the U.K. are still calling the gold price tune.

Meantime the gold price will likely remain volatile ahead of each successive FOMC meeting next year in a similar pattern to 2016.  The meeting dates are scheduled for Jan. 31-Feb. 1, March 14-15, May 2-3, June 13-14, July 25-26, Sept. 19-20, Oct. 31-Nov. 1 and Dec. 12-13.  But with so much uncertainty lying ahead – not least with various European election dates and the first months of a Trump Presidency, we would be surprised if the end of year gold price comes in lower than that at the end of the current year – whatever that will be.

10 Dec 2016 | Categories: Gold

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