Gold and ETFs such as the Direxion Shares Exchange Traded Fund Trust have started facing increased volatility in the last couple of weeks in response to the deluge of mixed U.S. economic data and chatter about a potential rate hike. The U.S. Federal Reserve has held its September FOMC meeting last week and it has decided to leave interest rates unchanged. This article provides insights on some clue that could help traders identify the volatility trends in gold in order to make informed trading decisions going forward.
Gold shines brighter after fed postpones rate hike decision
Last week, the Federal Reserve made a decision to leave Interest rates unchanged in a dovish statement. In the build up to the September policy meeting, the Fed has been asserting its readiness to raise interest rates but last week’s dovish stance seems to follow the voice of reason.
The fed made a logical decision not to raise interest rates and safe-haven investments such as gold and Direxion Shares Exchange Traded Fund Trust are better off for it. The yellow metal booked a decent 1.7% gain when the news of the Fed’s dovish stance broke. As at market open this morning, spot gold was up 0.1% to $1,337.28 after it had touched a session high of $1,343.64 to mark the highest trading price since September 8.
Interestingly, the dovish interest rate outlook and the attendant gains in bullion are already forcing the U.S. dollar lower. The dollar index, which tracks the U.S. dollar against a basket of 6 currencies lost its footing to mark the lowest level since September 12.
Here’s where analysts think gold is headed
Neil Wilson, an analyst at ETX Capital notes that “speculative traders with an exposure to gold in the forex, spread betting, and binary options market have found a sense of direction in the outcome of the last fed meeting”. The Fed Fund Future currently has the odds of a rate hike at 20% the Fed is not likely to raise interest rates until December 2016.
Analysts at Australia & New Zealand Banking Group Ltd have also opined that the Fed’s dovish call has revived the bullish interest in the yellow metal. The analysts noted that “while a cut in the Fed’s outlook for rates and the weaker U.S. dollar no doubt played a part, the continued efforts by Bank of Japan to bolster economic stimulus also helped.”
However, ABN AMRO commodity strategist Georgette Boele is not very bullish about the prospects of the yellow metal. He notes that the bullion might find a resistance ceiling at $1,350 because the current gains “is a follow on from what happened yesterday with the Fed being more dovish, the market is now going through the upside in gold prices.”
More so, analysts at RBC Capital Markets think that gold and Direxion Shares Exchange Traded Fund Trust have more downside risk than upside potential ahead. In their words, “Despite gold’s jump yesterday, we think it will remain well short of year-to-date highs, and while it will certainly experience continued volatility in line with a number of other macro assets, we remain cautious through year-end.”