Gold reached a seven week high this Monday as traders expected that the Federal Reserve will delay a U.S. interest rate hike that was expected by the end of the year and pressured the dollar to a position of three week lows against the other currencies. The dollar index resulted to a stun silence as it was down 0.1 percent on the day and raised doubts whether U.S. will see a rise in interest rates this year.
Predictions and bets about the interest rates in the U.S. rising this year and in turn, boosting the opportunity cost of purchasing and holding gold while helping dollar further, pushed gold prices to five and a half year lows in July. This time, while spot gold was up by 0.7 percent and reached a peak of $1,166.60 an ounce, the December gold futures for US were at $1,164.60 an ounce (being up by $8.70).
Investors fear global economic slowdown
Now however, these predictions have been dampened by the mixed economic data and fears pointing towards a broader economic slowdown that could affect growth of the U.S. While the prices did struggle to rise significantly in the past, they are now very little changed in the year to date.
According to Carsten Menke, analyst at a global Swiss private bank Julius Bare, gold is getting some support from the currency, as well as, the positioning side. And since the technical picture is undergoing improvements, that should be enough to bring in some short term positioning back in the market, she added. Adding on, she said that even beyond this short term noise, the truth is that there hasn't really been a big shift to gold and that there are still opinions about the Federal Reserve hiking the results eventually. Carsten Menke also said that in order to see a reversal from the investment side, they would like the Fed to loosen up on the issue rather than tightening.
'Just an expectation, not commitment'
The Vice Chairman of the Fed, Stanley Fischer said that even though the policymakers are still very likely to hike the interest rates this year, it is still an expectation and cannot be taken as a commitment. He also explained that the decision could change if U.S. is pushed further off course by the global economy. Money and hedge funds managers raised their bets to four month high, relying on expectations that the fed will delay the anticipated interest rate hike.