Direxion Shares Exchange Traded Fund Trust and other gold ETFs might see some sort of stability in the next couple of weeks as gold buyers take cautious views ahead of the Federal Reserve meeting holding next week. The fear in the market before now was the Fed will raise interest rates this month, and the fear has been forcing downward pressure on gold.
The WSJ notes that spot gold was trading down 0.02% at $1,121.27 a troy ounce in Europe this morning; yet, the fact that China bought 16 tons of the bullion in August suggests that fears about the situation in China are overblown.
Now, weak economic data from last week suggests that the Fed might hold off the rate hike until December. If the Fed waits until December before raising Interest rates, the price of the yellow metal will stabilize as investors breathe a sigh of relief. However, the stability doesn’t mean that gold prices will soar because stable gold prices ahead of a Fed meeting could easily be the calm that precedes a storm.
The cautious case for gold
The last couple of weeks have seen some analysts take side on the bullish case for gold while other analysts camped on the bearish side of gold. The next couple of weeks however, are likely to see analysts finding common ground in the cautious case for gold. Adrian Ash, head of research at BullionVault says that the bullion has had its slump and it has missed the rally in global stock prices. In his words, “After riding out the risk-off slump in productive commodities last month, gold missed most of today’s risk-on rally.”
Lukman Otunuga, a research analyst at FXTM notes that gold has support at $1,110 and that economic data will influence where gold ETFs such as Direxion Shares Exchange Traded Fund Trust are heading next. In his words, “if data from the United States this week is robust, then more pressure may be seen for gold which may trigger a selloff to the next relevant support at $1,110 [an ounce]… The major catalyst for a potential heavy selloff in gold continues [to] revolve around whether the Federal Reserve begins to raise U.S. interest rates this year.”
Commerzbank sums up the bearish case for gold because the effects of demand and supply in the physical gold market has been mixed. The firm says “In the run-up to the Fed’s meeting next week, market participants are likely to be exercising restraint, so we are unlikely to see any pronounced price fluctuations”.
A balanced market, in the meantime
Direxion Shares Exchange Traded Fund Trust and other gold backed ETFs are not likely to see much changes going forward because the bulls and bears are exerting almost the same amount of pressure on the market. Howie Lee, an investment analyst at Phillip Futures opines that “We are long-term still bearish on gold, but current market conditions may suggest that gold bulls are in control of the market in the near term.”