Taking a look over the last week, we can see that Thursday was the most important trading day for the yellow metal, with the gold futures spiking down amid a wave of slightly disappointing US economic data release, Fed giving a mixed monetary policy statement after finishing their “two-day” January meeting a day earlier.
The Comex division of NYME’s (New York Mercantile Exchange) traded the February gold delivery in a range between $1,111.30 and $1,125.70 per ounce, closing the day at $1,115.40. From a technical point of view, gold has reset its support at December 3rd’s low of $1,046.20 and it’s resistance at $1,138.70 registered on the 2nd of November.
Wednesday was the day the FOMC (Federal Open Market Committee) announced that they will make no changes in the short-term interest rate, leaving it unchanged for the time being. Given the turmoil in the global economy and the low inflation, FOMC’s vote was unanimously in favor of keeping the benchmark Federal Funds Rate in the same range, between 0.25% and 0.5%. This decision is coming after just almost a month since the Fed began the first tightening program in approximately a decade, which can also be translated as the first rate hike in seven years.
The market’s opinion in unequally divided, most investors and analysts thinking that Fed will head in with their next decision, especially after January’s statement is filled with ambiguity. However, the separation exists with one part leaning towards the fact that Fed’s latest statement indicates that the bank might be set towards a subsequent rate hike postponed for March and the other part inclining that Fed will leave the rate untouched in this year’s first quarter. According to the statement itself, the decision will relate to the evolution of the labor market, the inflation expectations and the global economic development. The FOMC is not any more “reasonably confident” that the 2% target inflation will be reached, literally removing the phrase from the statement.
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From the gold’s perspective, any rate hikes this year will only bring bearish sentiment, intensifying its struggle in competing with high yield assets in the rising rates environment.
On Friday, the yellow metal closed the session with gains, although the bullish tone in the greenback, reinforcing its safe-haven condition. The strong risk-averse fog which covered the first weeks of the year added to Chinese markets turmoil increased the demand for safety and pushed the metal out of its multi-year lows scored in December.
Gold closed the week slightly above the $1,116 threshold, 18% higher than Thursday and 1.64% up on the whole, with 5% gain for the whole month.
