Gold is holding steady this morning and the Direxion Shares Exchange Traded Fund Trust is coming up strong. The ETF was up 3.74% to $22.13 on Thursday and it has gained another 2.30% in pre-market trading this morning. The relative stability in the bullion this morning could be traced to the expectant air among investors as the market awaits the speech by Federal Reserve Chair Janet Yellen today.
This morning spot gold was up 0.1% to $,1,323 an ounce as at 0059 GMT, bullion for December delivery was up 0.1% at $1,326.10 an ounce. The gains in the bullion this morning contrasts sharply with the losses recorded earlier in the week. Investors will note that the yellow metal touched a 4-week low of $1,317.46 on Thursday. Now, investors are hoping that Yellen might provide an insight to the Fed’s plan for raising interest rates.
Dollar dips to lift gold ahead of Yellen speech
The price of gold and the Direxion Shares Exchange Traded Fund Trust have been fluctuating based on news about a potential rate hike since the markets opened for trading this year. One day, the market will be abuzz with news that the Fed is about to raise interest rates; and the next day, the market will be filled with rumors that Fed is not interested in raising interest rates.
On Thursday, some top Federal Reserve officials became more vocal about the need for the Fed to raise interests now instead of waiting until all the economic stars align. The officials noted that the initial plan for the Fed to reach full employment and 2% inflation before raising interest rates might not augur well for the economy. The fed officials also noted that the recent job gains in the labor market and uptrend in the economic outlook is enough reason to raise interest rates.
Against the backdrop on economic recovery and gains in the labor market, Wall Street expects Yellen to use words that suggests that a rate hike is in sight. Interestingly, the prevailing market expectation of a rate hike is causing the dollar to edge lower. This morning, the dollar index, which tracks the bullion against a basket of six rival currencies was down 0.2% to 94.622. Of course, a weak dollar often makes the bullion more attractive to buyers.
Gold might break down below key support level if Yellen doesn’t raise rate
Wall Street is optimistic about the chances of a rate hike, but there’s also the possibility that the Fed will not raise interest rates. James Steel, an analyst at HSBC says, “there is a chance that Yellen could decide that a stronger signal about near-term policy would now be appropriate in light of diminished risks globally and an improved U.S. labor market.”
Interestingly, Analysts have observed the gold and the Direxion Shares Exchange Traded Fund might fall lower in the coming days if Yellen doesn’t give a clear indication that the Fed is prepared to raise interest rates. Hareesh V, research head at Geofin Comtrade observes that “prices have been falling for the last couple of days on uncertainty over Yellen’s speech. Any signals on a rate hike would lead gold to $1,280 levels.” Interestingly, the $1,280 price point has been a critical support level in the last one year; hence, the yellow metal might fall all the way to $1,200 an ounce.