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Forecast: No Hope for Gold Bulls

March 9, 2015 at 19:09 by Vladimir Vyun

When the current year has started, it looked like repeating the first half of the previous year when gold demonstrated strong performance. Yet the similarity proved misleading as the rally was short-lived, ending as soon as the end of January. Is there hope for gold bulls? Unfortunately for them, there are few reasons to be optimistic about the precious metal.

The major negative factor for gold prices is the outlook for an interest rate hike from the Federal Reserve. The metal took a big hit on Friday after the release of stellar nonfarm payrolls which led to speculations that the Fed will perform a hike sooner rather than later. Of course, there is still room for improvement of the labor market as wage growth almost stalled, yet it did not spoil optimism among traders much.

One of the crucial events that will likely determine gold’s performance in the near term is the next Fed’s policy meeting. It will occur next week, meaning that until then the market will be ruled by speculations. As for macroeconomic data that may affect the meeting’s outcome, the JOLTS report released tomorrow is the important employment report. It tends to have lesser impact than nonfarm payrolls that are released earlier and also due to the fact that it is a lagging indicator (reporting not the last month but the one before the last.) Still, Fed’s members pay close attention to the data. Other major reports, including retail sales and the Producer Price Index, may also affect the market.

Outside of the United States, things do not look promising for bullion as well. While China’s trade balance improved in February, it happened not only because growth of exports but also due to the drop of imports – not a good sign for the metal. Additionally, China’s officials predicted slowest growth of the country’s economy in more than a decade. All in all, news from the Asian nations, which is the second biggest gold’s consumer in the world, was not very good lately.

Considering all the negative factors, it is not a surprise that analysts are universally bearish on the precious metal. Trading NRG said:

For now, gold and silver are on the ropes and unless the market sentiment chances course – perhaps a few economic reports from the U.S. showing slower than expected growth — bullion prices are likely to resume their slow descent.

Forex Crunch noted:

Initial resistance stands at 1182 (2015 open) & is backed by 1198/1200 (bearish invalidation level). We could get a snap-back here for a short reprieve but bottom line- looking lower while below Friday’s highs with support expected into 1150.

If you have any questions and comments on gold today, use the form below to reply.