Commodity Blog

Commodity news, technical and fundamental analysis, market data on precious metals, energies, industrial metals, and soft commodities


What Factors Will Be Influencing Gold In Near Future?

July 8, 2014 at 22:36 by Vladimir Vyun

It looks like gold is unsure where to go after the recent huge rally that has occurred following the latest Federal Reserve policy meeting. Let us look at factors that may affect the performance of the precious metal in the near term.

Bullion advanced after the Fed meeting as comments of US policy makers were far more dovish than was anticipated. The minutes of the June meeting, released on July 9, may provide additional insights into the outlook and plans of the US central bank. If anything particularly important will be revealed gold may establish a new trend, though it is hard to tell now will it be upward or downward. As for the next policy meeting, scheduled on July 30, it is not likely to impact gold in any noticeable manner. Most analysts believe that the Fed will maintain the pace of stimulus cuts, and each next cut has a smaller impact than the previous one as traders grow accustomed to quantitative easing reductions.

US employment data has usually a big impact on various markets, including precious metals. Yet the recent impressively good nonfarm payrolls had a surprising influence on commodities, boosting them after driving down initially. What is more, the latest job openings data also came out better than expected, yet the metal rallied instead of falling. It looks like US labor reports have a muted impact on markets right now.

Other news from the United States should also affect gold and other metals. Positive news usually bolsters the dollar, driving commodities down. Consequently, worse-than-expected data drives the greenback down, boosting the commodity market. Yet as one can see with the reaction on the employment data, markets may behave weirdly and unpredictably, making it hard for traders to catch a new trend.

Asia, particularly China, also has a significant influence on gold’s performance. Signs of growth in China often help bullion, especially after the second-biggest world economy replaced India as the largest consumer of the metal in 2013. Still, India remains an important factor for gold’s performance. The value of the Indian rupee is a basis of buying power for the Indians, and, unfortunately for gold, it waned last month.

Other parts of the world have no big impact on gold right now. The European Central Bank refrained from changing its monetary policy at the latest policy meeting after it had shocked the market at the previous meeting, implementing negative interest rates. Geopolitical tensions in Iraq and Ukraine had a fleeting influence on bullion’s behavior and are not likely to affect gold in the future unless some major event happens.

If we look back at the seasonal performance of gold, the metal has tendency to start a decline in May and reverse its movement to the upside at the end of July. Yet it looks like the timing has shifted this year as gold was falling since March yet started a rally in June. This may mean that bullion is ready to resume its upward movement soon. The Commitments of Traders Report supports the bullish outlook as not only speculators have more long positions than short ones, they also increased the number of bullish positions, unwinding bearish bets at the same time.

Yet not all analysts support the bullish outlook for gold. TradingNRG believes that the metal should fall both this week and over whole July.

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

Leave a Reply