Vang SJC

Yesterday (16th June), gold price declined while dollar strengthened as investors eyed FOMC meeting to find clues for the timing of rate hike. Gold price once fell to $1,175.92/ounce and closed at $1,181.1/ounce, decreased by 0.32% from the open price of $1,185.6/ounce.

At the moment, gold is traded at $1,179.54/ounce.

Today’s most important event is the FOMC meeting discussing monetary tightening. Fed’s announcement at 1 am GMT+7 will strongly influence gold market.

In the March meeting, Fed’s president, Janet Yellen lowered economic projections and the pace of rate hike after the slowdown in the first three months. However, she considered the weakness in the QI as transitory. In this month’s meeting, Fed is not likely to be in a hurry, as inflation is still below 2% and economic statistics show mixed results. However, U.S. economy is showing sign of rebound as retail sales in May jumped by 1.2%, non-farm sectors created 280,000 jobs etc. Those will pave the way for a rate hike in September, according to some economists.

Today, gold price is more likely to face downward pressure because of the following factors:

  • German Chancellor, Angela Merkel, hopes a deal to be reached in the meeting of European finance ministers on Thursday. The female leader indicated that she would do everything possible to keep Greece in Euro zone. On Monday, the president of European Central Bank (ECB), Mario Draghi stated that European economy is showing sign of recovery. He also said that effort has been intensified to rescue Greece; however, the indebted country needs to show their willingness. Greek drama sparkles hope and European economy improves may dampen gold’s appeal.
  •  According to a surveys conducted by Bloomberg in April, May and June, economists’ concession showed that September may be the right time. Rate hike will make gold less attractive.

Nevertheless, gold price may rally because of the following reasons:

  • Greek prime minister accused international creditors of humiliating their country and people when demanding pension cut and tax hike. The leftish government refused to present new proposal to avert default. Gold price may find support if the negotiation faces standoff.
  • Chinese stock market saw the biggest losing streak since January 2009. Shanghai Composite Index has decreased by 7.4%. According to a report from Bocom International Holdings Co., the stock bubble was about to burst in the next 6 months. However, the Shanghai Composite Index  has declined continuously, showing sign of cool down. Some investors may withdraw their investment from the stock market to move to other assets such as gold.
  • India’s gold demand appear to rally because gold export to this country increased by 10.47% to $2.42 billion because of lower price and less restrictions from the central bank (RBI). Demand for the precious metal may support gold price in the coming time.
  • Bank of China has become the 8th member of LBMA Gold Price. China is the biggest gold market in the world. The country has accumulated gold in order to internationalize the yuan. China’s gold stock may threaten dollar.

Forecast: Gold price is more likely to decrease, reaching the price of $1,168.58/ounce, but the trend appears to remain in a short period of time.

Hanh Nguyen