Spot gold saw a corrective bounce higher on Friday morning after tumbling more than $20 per ounce at once point on Thursday. This was the worst trading day for the gold price in 5 months, so even a modest correction the next session would be expected. The spot gold price was about $12.50 higher to $1,064/oz at 10 am ET, while silver was 2.7% higher to $14.15/oz. Platinum was also up 1% to $856/oz.
Friday is also the year's final Quadruple Witching, an occurrence once per quarter where all four asset classes (stock index options and futures, and individual stock options and futures) expire on the same day. This confluence of events usually leads to greater volatility on the markets and high volumes as traders must close out positions. There could also be some volatile action as we near year-end and "book-balancing" is taking place—where investors and traders may sell certain assets at a loss for tax purposes.
At the opening bell in New York, Wall Street was trading about 0.5% in the red, following global equities markets lower.
Some of the developments having a broad impact on trading Friday are the strength of the dollar and a surprise move by the Bank of Japan. The DXY pulled back slightly to just above 99.0 after surging above 100.0 yesterday, but the outlook for the dollar remains bullish. This is only reinforced by the Bank of Japan's decision to pump more monetary stimulus into its economy—but in a roundabout way.
Many observers expected the BoJ to stand pat on any more stimulus until next year because it has basically exhausted all of its tools for doing so, having flooded its stagnant economy with trillions of yen over the past two decades (with very little to show for it). However, the central bank decided to allocate an addition 300 billion yen per year to Japanese corporations that help grow the economy. Rather than pushing the extra funds into the financial system, Japan will instead directly reward companies themselves. While this isn't quantitative easing per se, it's undoubtedly stimulus.
Rate Hike Impact Mixed
Although higher interest rates are not necessarily bullish for gold because they make it more costly to store or hold the metal, several sources have pointed out that rate hike cycles are historically not a negative development for gold prices. Among others, TD Securities reasons that since gold has performed well in recent rate hike cycles, and 2016 is expected to see very shallow and gradual rate increase, the situation could prove even more beneficial to the precious metals than in the past.
If the global economy rebounds at all next year, according to TD Securities analysts, it will help bring the interest-rate differentials between the U.S. and other economies closer together. This will mean global markets will stop favoring the dollar as much, which would be even more supportive of higher metals prices. The analysts saw the gold price progressively reaching $1,200/oz by the end of 2016. Analysts at Credit Suisse, however, see the possibility for gold to retest $1,000 per ounce before 2015 is over.
From a technical perspective, $1,045/oz is the key support level for gold prices. This is an important Fibonacci line (127.2%) as well as gold's lowest trading level since February 2010. This morning's action confirms that $1,050/oz and $1,055/oz are strong near-term support levels, while the next two resistance levels below $1,100 are $1,078/oz and $1,090/oz.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.