(Kitco News) - After almost a full year of anticipation, in less than a week the Federal Reserve is expected to raise interest rates for the first time since June 2009, and analysts think the move could have positive, albeit, short-term implications for the gold market.
For the second consecutive week, Comex February gold futures benefited from what analysts described as “weekend short covering;” however, there wasn’t enough momentum in the day for prices to end the week on a positive note. February gold settled the week at $1,075.70 an ounce, down almost 1% on the week.
Although gold managed to bounce off its lows, silver saw significant selling pressure, settling the week at $13.884 an ounce, down 4.8% on the week; this was silver lowest close since mid-2009.
Sentiment is mixed in the in the gold market ahead of what is being described as a historic Federal Reserve meeting on Wednesday , according to the latest Kitco News Wall Street vs. Main Street Weekly Gold Survey
This week, 450 people participated in Kitco’s online survey. Of those respondents, 116 people, or 26%, are bullish on gold next week. At the same time, 299 people, or 66%, are bearish and 35, or 8%, are neutral on gold prices.
Out of 36 market experts contacted, 18 responded, of which nine, or 50%, said they expect to see higher prices next week. At the same time, five analysts, or 33%, expect to see lower prices, and three people, or 17%, are neutral.
Although next week will see the release of key U.S. economic data, most analysts agree that all the focus is on the central bank meeting. Fed Fund futures are pricing in a more than 80% chance that the Fed raises interest rates by 25 basis points; however, with expectations so high, many professionals are now focusing on the tone of the central bank’s monetary policy statement and of Fed Chair Janet Yellen’s subsequent press conference.
Although recent comments from Yellen have been supportive of a rate hike, she also reiterated that the committee sees only a gradual rise in interest rates.
“There could be a relief rally after first rate hike, especially if it is only one quarter point and accompanied by soothing words about being cautious moving forward,” said Adrian Day, president of Adrian Day Asset Management.
Ole Hansen, head of commodity strategy at Saxo Bank, said that he is expecting to see higher gold prices next week as the Fed meeting will create some profit taking in U.S. dollar bulls, which will be the biggest factor to drive the gold market in the short-term.
He added that he could see gold prices push above $1,100 an ounce.
Ken Morrison, editor of the newsletter Morrison on The Markets, also expects to see gold benefit from U.S. dollar weakness, but noted a lower price target at $1,095 an ounce.
Other analysts are optimistic on gold as negative sentiment continues to dominate the marketplace with speculative short positioning near record territory.
“All of these people are selling into the news but they will be covering their shorts after the announcement,” said George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures. “There are a lot of nervous shorts in the marketplace right now.”
Although most analysts agree that gold prices are due for a short-term rally, some aren’t optimistic that gold will attract long-term investors.
Gero added that although gold prices appear to be bottoming out, funds won’t jump back into the market until they are confident prices are going higher. The line in the sand for investors appears to be above $1,100 an ounce, he said.
Chris Beauchamp, market strategist at IG, said that he is optimistic that prices can move higher in the short-term, but also warned that investors need to pay attention to oil prices as they will continue to drag down the broad commodity index. He added that on a technical chart, gold has to hold $1,050, an ounce, and if that level breaks then investors need to watch the 2008? highs around $1,030 an ounce.
Ted Sloup, senior commodity broker at iiTrader, said that although he is confident gold prices will see a boost next week, he added that investors need to be careful about jumping in too early. He noted that there is a risk that a relief rally could fade quickly as there is still broad-based weakness throughout the commodity sector.
Although the main event for economic news next week is the Fed meeting, markets will also receive regional and preliminary manufacturing data along with consumer price inflation.
By Neils Christensen of Kitco News; nchristensen@kitco.com
Follow me on Twitter @neils_C
