Monday, September 15, 2014

Dollar movement to cue precious metals price direction

by Lynette Tan

The precious metals complex has been hammered hard the past week as the dollar continued to strengthen on the back of expectations to the end of monetary easing policies. The FOMC meeting scheduled for this week will no doubt be the key event investors watch out for with dollar movement influencing precious metals price directions.

“Many investors are expecting slightly hawkish tones from the Fed, as seen in the upward run on Treasury yields last week. If Fed Chair Janet Yellen really does drop tones of a rate hike, this could put gold under a lot of downward pressure as demand for the anti-inflationary asset would wane,” said investment analyst Howie Lee from Phillip Futures.

“There has been a sizable short position built on the gold market ahead of the upcoming FOMC meeting. This is attributed to an increase in expectations for tighter monetary policies. Should the FOMC statement be less hawkish than expected, bullion may be susceptible to a short covering rally,” said HSBC Securities analyst James Steel.

Gold prices were slightly higher this morning, recovering from the one percent slide on Friday to last seen at $1,234 per ounce, up around $6 from Friday’s close. Silver was stable at $18.65 per ounce after falling $0.03 on Friday.

“Silver prices are hammering on support again – how solid is the floor? A break lower could lead to a sharp move but in turn that might turn into a spike. The fact the floor looks solid does not mean it is. Be prepared in case it gives way,” said Head of Research at FastMarkets, William Adams in a research note.

Other than the FOMC, the Scottish Independence Referendum will also introduce event risk to the financial markets.

“The British pound took a beating on Monday, falling 1.4 percent against the greenback, as a poll showed pro-secession Scottish taking a majority lead in the referendum for the first time…With the conclusion of the Scottish referendum due this Friday, the pound and euro may suffer a selloff earlier in the week as investors err on the side of caution by taking short positions,” Lee commented.

Platinum and palladium fell together with the rest of the complex last week, with palladium leading a six percent decline while the rest average around three percent lower. This morning palladium was up $2 to $838 per ounce, while platinum fell a further $3 from Friday’s close to $1,365 per ounce.

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