Gold (XAU/USD) Latest News
futures fell slightly on Wednesday on below average volume on expectations that the U.S. Federal Reserve might raise interest rates in December. The December Comex Gold contract finished at $1253.80, down $2.10 or -0.17%.
Gold traders primarily took their direction from the U.S. Dollar, which gained 0.1 percent against a basket of six major currencies.
The price action was driven late in the session by the minutes of the Fed’s September meeting. They showed that several voting policymakers judged a rate hike would be warranted “relatively soon” if the U.S. economy continued to strengthen but doubts on inflation remained.
The minutes didn’t mention a specific date for the next rate hike, but traders have pretty much taken a November date off the table while increasing the chances of a December rate hike to 70%. About 74% of economists surveyed by The Wall Street Journal in September said they expected the Fed’s next move in December.
The minutes also revealed a growing divide among Fed officials, who disagree over how much lower the unemployment rate can go before the economy overheats and inflation gets out of control.
Fed Chair Janet Yellen led the group that favored a patient approach in raising rates because it judged the labor market still had room to improve.
The three dissenters wanted to raise rates 25 basis points in September. They were worried that a cheap money environment would create asset bubbles in the economy and the labor market to get too tight. Another concern was that inflation could push above the Fed’s target and force to raise rates rapidly, which could limit the economic expansion.
The Fed minutes suggest that the Fed is going to raise rates in December. This should limit the upside for gold. If there is a rally, it is likely to be fueled by profit-taking or hedging pressure due to a selloff in the stock market. Oversold technical conditions could also trigger a rally, but all of these factors should set up the next shorting opportunity if the economy continues to improve.
The Fed just wants to see a little more data on inflation and the labor market just to be sure the economy is moving in the right direction. And over the next two months, it is expected to get the data it is looking for.
I still favor the short side but at current levels and based on the chart pattern, it is going to have to be some aggressive shorting with high volume to move the market sharply lower at this time. I think that the hedge funds want to get short, but maybe not at current levels. Waiting for a short-covering rally into a retracement zone or perhaps the psychological $1300.00 level may be the prudent thing to do at this time.