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A Weaker Gold Price Amid BoE, FED and Currency Movements
Today’s gold price fell to £719 ahead of the Bank of England’s (BoE) announcements at 12pm. This, combined with the Federal Reserve Bank’s (FED) hawkish sentiments led by Janet Yellen, has sent currencies into volatility and has lead to a weak gold price.
BoE Announcements Today
Today was yet another Super Thursday in the financial calendar and I’m sure one that we were all looking out for. Today the BoE announced that it was going to be keeping interest rates to 0.5%. The Monetary Policy Committee (MPC) made up of nine members able to vote on policy decisions, voted 8-1 to keep interest rates at the current level. In September the CPI was at -0.1% which is considerably below the 2% inflation target the Chancellor & Mark Carney have cited for the UK to raise interest rates.
Mark Carney has issued an open letter to the Chancellor, George Osborne, explaining as to why he couldn’t obtain the target for inflation, citing oil prices, the strength of sterling on imports and the global economic slowdown (in essence China), as the main reasons.
The BoE have been fairly dovish in the recent release and this has already hit the sterling price with the pound falling against the dollar from 1.5404 to 1.5271 (as of writing this). The hit on the pound will help to lift the gold price in sterling.
The FED on the other hand have been bamboozling the markets (and probably themselves) by appearing to be Hawkish in their recent announcements. Yellen and the FED surprised markets and investors with the announcement that interest rates could be increased before the end of the year. The growth although not quite a strong as the FED had anticipated, did receive positive news in the form of stronger consumption growth at 0.8% which shows strength in the economy. A rates rise sooner rather than later will continue to keep the dollar on the front foot and help to maintain currency strength. It will yet to be seen whether the FED will follow through with this and it would be expected that the US would at least need to see another couple of positive figures (labor market/ non-farm payroll etc.) being published before it would be seriously considered.
Verdict:- Despite the BoE suggesting an early next year rates rise, it is probably not likely until May/June next year and again it is only likely to be a +0.1% increase. The BoE may well try and ride the US rates rise (presuming that happens in the early part of 2016) but it is going to be more of a struggle for the UK economy. The gold price in dollars is likely to have a lot of downward pressure next year, however if the results don’t come through and the sterling price continues to be hit, the yellow metal will hold.
Article by Michael Cooper