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Gold Price Consolidates as Dollar Rebounds

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Gold Price Consolidates as Dollar Rebounds

When the FOMC held interest rates steady at the conclusion of last week's meetings on monetary policy, the dollar fell and the precious metals rose. There was some expected pullback in the gold price on Monday morning as the yellow metal consolidates after posting steep gains to close out the previous week.

Spot gold was down from its recent high above $1,140 per ounce this morning, falling about $6.50 to $1,134.50/oz. Meantime, silver still rose by 0.4% to $15.35/oz.

gold-rallyThe main trigger for gold's surge at the end of last week was the Fed announcement that no changes would be made to the federal funds rate. While bottom-of-the-barrel interest rates are not necessarily a price-mover for safe havens like gold, the message that the FOMC sent by leaving rates unchanged was one of economic uncertainty and, perhaps, instability.

This signal that the economy is not yet resilient enough to handle interest rates above zero helped spur some flight into gold, as the Fed's hesitancy to normalize rates indicated that a great deal of concern remains regarding the health of the global economy.

Corrective Slump

As said above, the correction for gold was hardly unexpected. The modest pullback for gold (only about -0.6%) on Monday is largely a result of consolidation as the markets adjust to last week's rally for the precious metals. A stronger dollar also dampened any further gains for gold bullion. The USD gained over 1% against its peers according to the DXY dollar index, which rose to 95.9.

There is also, however paradoxically, renewed expectation that the Fed will pull the trigger on tightening monetary policy sometime before the 2015 calendar year is over. The central bank has just two chances left to do so at its policy meetings in October and December.

Over the course of the last year, the gold price has touched as high as the $1,300/oz mark (in January) and as low as $1,085/oz.

Future Expectations

gold marketThere may be a fresh wave of buying momentum for gold if we are to believe the expert opinions of analysts at JPMorgan. According to research conducted by the megabank, 72% of the investors polled believe that the gold price will be on the rise over the next 3 years, with an average price near $1,300 per ounce. A larger proportion of the group indicated that they will be increasing the proportion of gold in their portfolio, as well.

Looking ahead, there may be some higher volumes and volatility in gold trading late this week due to the gold options expiry falling on Thursday, September 24th. This is when traders must close out or rollover their positions on gold; given the accelerating pace and intensity of the ups-and-downs in metals prices (and basically the market values of all assets) of late, the potential rise in volatility on the expiry date may be influenced by traders and large institutions switching into new positions as the gold market has fluctuated over the last month or so. The more that the future for the global markets is in doubt, the more unpredictable trading will be.

About the Author

Everett Millman

Everett Millman

Analyst, Commodities and Finance
Managing Editor

Everett has been the head content writer and market analyst at Gainesville Coins since 2013. He has a background in History and is deeply interested in how gold and silver have historically fit into the financial system.

In addition to blogging, Everett's work has been featured in CoinWeek, Advisor Perspectives, Wealth Management, Activist Post, and has been referenced by the Washington Post.

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