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This article first appeared in The Edge Financial Daily, on November 16, 2015.

 

KUALA LUMPUR: Analysts expect gold to maintain its upward momentum until end-2015, supported by uncertainty surrounding global economies, with US interest rate expectations among the main factors influencing the precious metal’s price.

Gold prices recently saw a rebound, breaking the US$1,180 (RM5,192) an ounce level in mid-October after touching lows of between US$1,080 and US$1,090 an ounce in August, according to Bloomberg data.

However, prices retreated after the US Federal Reserve (Fed) indicated a possibility for a rate hike in December after the recent October Federal Open Market Committee (FOMC) meeting.

Last Friday, spot gold was down 0.1% at US$1,083.30 an ounce.

ForexTime Ltd (FXTM) chief market analyst Jameel Ahmad told The Edge Financial Daily that the performance of gold has been strictly correlated to the US interest rate expectations in 2015, keeping the yellow metal under continuous pressure amid the consistent economic data from the US throughout the year.

“Following the Fed disappointing US dollar buyers when the central bank left interest rates unchanged in September and owing to the consequently pushed back US interest rate expectations, gold did manage a modest attempt to recover some losses throughout October,” said Jameel.

He said the positive momentum of the metal could continue until year end, as demand for safe-haven assets such as gold are expected to rise amid the global economic uncertainty.

“Having said that, gold reversed its gains very suddenly when the latest Fed interest rate statement issued around a week ago suggested that the central bank still remains committed to raising US interest rates in 2015,” he said.

To recap, Fed chair Janet Yellen indicated that a lift-off in US interest rates, which has been kept at near-zero levels since 2008, in December is a “live possibility”, provided that the US economy maintains its growth momentum for further improvements in the labour market and inflation, according to reports.

“What the committee has been expecting is that the economy will continue to grow at a pace that is sufficient to generate further improvements in the labour market and to return inflation to our 2% target over the medium term.

“If the incoming information supports that expectation then our statement indicates that December would be a live possibility,” she was quoted as saying.

The upcoming FOMC meeting is scheduled for Dec 15 to 16.

Meanwhile, Jameel noted that global economic weakness was a major factor behind the Fed not raising its rates in September, and pointed out that China’s gross domestic production(GDP) growth has fallen below its government’s target, while the pace of recovery in Europe and Japan remains uncertain.

“This makes it difficult to argue for a US interest rate rise,” he said, adding that gold could hit another milestone low this year, potentially below US$1,000 an ounce if the Fed raises interest rates.

However, if the hike is postponed beyond the first quarter of next year, he said there is potential for an aggressive weakening of the US dollar, which could send gold back above US$1,200 an ounce.

Similarly, Nomura expects the metal’s upward trend to continue until the Fed meeting in March 2016, when rates are expected to be lifted.

The research house said its economists still expect a March hike, as it is still unclear whether US economic data will be strong enough for a lift-off in December.

However, Nomura does not see any fundamental support for gold, apart from the headwinds due to the rate hike, expecting gold to test the US$1,100 an ounce support level when the lift-off does happen.

“Assuming our house view of a first hike in March 2016 is correct, we expect the current modestly upward trend of the gold price in 4Q to continue until nearer to the March 17, 2016 FOMC meeting.

“This trend is likely to be volatile, as there might be some pullback closer to the Dec 17 FOMC meeting, before a fall in the gold price around March and April 2016,” said the research house.

For the shorter term, Lew Chee Hao, technical strategist at RHB Retail Research sees a bearish trend ahead for gold, following the correction on Oct 15.

He sees the immediate resistance level at US$1,111.20, while the next resistance was seen at US$1,125.

“To the downside, we are eyeing the immediate support level at US$1,072.80, which was the previous low of July 24. Meanwhile, the crucial support is seen at the US$1,000 psychological mark,” said Lew.

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