What gold tells us about a Fed rate hike – eToro Tips & Picks

Gold has been an interesting play over the last week or so, and most definitely throughout yesterday’s session.

 

A report in the weekend press highlighted the fact that the gold rally may well be over, on the back of the Fed’s move to start raise interest rate – and we saw that last week after Janet Yellen’s press conference.

 

Markets have now taken it upon themselves to take news of a rate hike as bullish for equity markets, as the Fed’s comments last week highlighted October as the key month.

 

The precious metal has fallen below some key downside levels over the past 24 hours, and is looking a little more fragile than it has in the past. And the fact that we now see upside on the back of hawkish comments means that it is incredibly hard to second guess where markets will go next.

 

The Fed has pointed to October for a rate hike, but has also said that the meetings are “live”– meaning that decisions can be made up until the day of release.

 

However, this means that, although we are aiming at an October rate hike, much like we had been aiming for September, any last-minute upset from China could well cause huge market uncertainty, and derail the policy change plans of the FOMC yet again.

 

 

Equity markets failed to hold onto gains from last week and plunged on Monday. And with some key data out of China later in the week, the contagion from China to other emerging markets could well dominate.

 

Later in the week, we will have Chinese PMI numbers, and a poor performance here could well have the bulls running for the hills again, ahead of Friday’s US jobs report.

 

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I will be keeping a close watch on events that affect oil prices in the coming months.

 

The recent oversupply and the possible lifting of sanctions on Iran resulted in West Texas Intermediate (WTI) prices tumbling to a six year low of around $37 per barrel in August this year.

 

Since then, we have seen a nice rally to $49, which has now comfortably settled at the $43 to $47 level. Speculations either way are rife: more oversupply could send prices to as low as $20.

 

On the other hand, there is the argument that, although the glut will persist, low prices have already been factored in, and the US supply market might start to tighten making $60 per barrel quite feasible.

 

It will also be interesting to see how the continuing slowdown in China will impact prices, and what Opec will do to prevent prices slipping too low – or if a completely new development could emerge to throw further spanners in the works.

 

Either way, it’s going to be an interesting and slippery ride.