Gold investors took a breather on Monday after the yellow metal fell to a two-week low and the Direxion Shares Exchange Traded Fund Trust started the week with losses. There weren’t many reasons for investors to smile on Tuesday either because the gold-backed ETF ended the session with a 4.36% decline at $136. Now, investors are looking forward to the Federal Reserve in order to know for how much longer the volatility surrounding interest rates will last.
The Federal Reserve chair, Janet Yellen is due to deliver a speech on Friday at the Jackson Hole Symposium. In her speech, investors expect her to talk about the fed outlook on the U.S. economy, timing for raising interest rates, and the magnitude of the rate hike.
Investors look forward to Yellen’s speech on Friday
Last Friday, the price of gold and Direxion Shares Exchange Traded Fund Trust was under attack after the U.S. dollar found strength against other currencies. Now, the dollar is edging lower and gold investors might see an uptrend in prices in the next couple of days until the Fed speaks on Friday. Yesterday, the WSJ Index that tracks the greenback against six other rival currencies traded down to 85.65.
Meanwhile, investors are staying put until Friday before they reach a conclusion on whether the price of the bullion is poised to go higher or lower. Adam Koos, president of Libertas Wealth Management Group observes that “The market is going to be watching to see if the puppeteers hint at higher rates in September and gold will trade off that news when it hits the board.”
The wordings of Janet Yellen’s speech on Friday could determine how the bullion would trade heading into the last quarter of the year. However, it is likely that investors won’t be able to gauge the fed’s positioning on interest rates when Yellen delivers her speech. Yellen might want to play safe in her speech in order to avoid preempting the FOMC.
Thorsten Proettel an analyst at LBBW analyst observes that “Volatility (in gold) is very low, and that means people are waiting for new information that they can price in… Many people are looking to Jackson Hole, and what is going to be said there.”
The bullish case for gold is still strong
However, if Yellen sounds cautious in her remarks, the market might mistake her caution for a dovish stance and investors might increase the demand for gold based on the dovish outlook. However, the fact remains that the Fed won’t make the decision to raise interest rates in a vacuum. Whenever the Fed decided to raise interest rates, the decision will be based on pulse of the economy based on economic data.
Nonetheless, the prevailing economic trend appears to be bullish for gold and the Direxion Shares Exchange Traded Fund Trust should record significant uptrend going forward. Barnabas Gan, an analyst at OCBC “Despite the improving U.S.-centric fundamentals, we expect investors to remain long in gold given the need to insure against wild cards into the year, namely the growth risk from Brexit into 2017 and the upcoming November’s U.S. presidential elections.”