To say the past trading week for gold was uneventful would be an understatement. The yellow metal traded in a very tight range as the bulls continue to try to find reasons to buy. The bears, on the other hand, are likely looking at a stronger dollar index and impending interest rate hike as reasons to sell.
The dollar index has seen strength in recent action as the British Pound continues to decline. The potential for a “hard” Brexit appears to be sinking in at this point, and the dollar could see some ongoing support if the pound keeps falling.
Speaking of interest rate hikes, Fed Chairwoman Janet Yellen spoke on Friday, and while she did not directly address the current economic scenario or the likelihood of a December interest rate hike by the central bank, her commentary was considered to be dovish by some analysts.
What might this mean for gold and precious metals?
The fact that Ms. Yellen appears to be maintaining a dovish bias could potentially set a lower baseline for future rate increases. Perhaps such a tone could be indicative of a very slow pace of hikes, with only one or two hikes being seen over the next year.
Interestingly, this comes at a time when some are hoping the Fed raises rates-and soon-so they will be able to lower them again once the next recession hits.
Billionaire investor Wilbur Ross sees a recession coming down the pike within the next 18 months, and fears the Fed will lack the ammunition necessary to fight it. In an interview with Marketwatch.com, Mr. Ross stated: “The Fed’s toolbox is basically empty. They need to replenish that toolbox in order to have a way to help, if and when we get into this recession that I see in the next 18 months or so.”
Make no mistake, this is not a call to raise rates because the economy is doing great, but rather it is a strategic call to hike rates before the next downturn hits.
Such a scenario could potentially be bullish for gold, silver and other perceived safe haven assets. Much has been made of the possibility of a rate hike from the Fed this year, although in the grand scheme of things, how big of a deal is a 25 basis point hike?
Gold could potentially find support near current levels, although the possibility for more downside does exist. The stronger dollar and idea of a December interest rate hike by the central bank may weigh on gold for the time being, but the yellow metal may find plenty of buyers once the next hike does occur.
For the time being, gold may find itself in somewhat of a holding pattern. Investors will continue to monitor the data stream very closely, although at this point a December hike looks like a foregone conclusion. The gold bulls will also likely welcome any potentially bullish catalyst. Some recent concerns over Deutsche Bank and the Chinese economy could make headlines again, and could potentially fuel a rally in gold and perceived safe haven assets while driving selling in stocks and risk assets.