Gold has had one of its better months as of late being up just over 3 percent since the beginning of November. Commodities on the other hand, have dropped 11 percent of their value since the plunge of energy prices. But one should ask, even with these dramatics changes, is gold safe and clear? TD Securities commodities researchers say no and are advising investors to “go short again” with recent forecasting of the Fed’s next move.
The Federal Reserve will release their newest policy decision this Wednesday, and that could have a dramatic influence on current events. Everyone is wondering if the central bank will stay true or abandon is famous phrase keeping federal funds rate target ultralow for a “considerable time.” Bart Melek, the head of commodities strategy at TD Securities, believes the Feds statement is “the catalyst which sends gold into a free fall toward new cyclical lows.
TD Securities’s senior commodities strategist, Mike Dragosits, believes that if the central bank does not install such changes, gold will drop to its next “pivot point” at $1,182. Experts believe if the Feds remove their “considerable time” phrase, it was also remove the chance of the first hike in fed funds rate till 2016. If short-term rates are raised sooner than later by the Feds, gold will take a hit due to an increase in short-terms rates increasing the effective cost of holding non-yield-producing assets.
Bill Baruch, a senior commodities broker for iiTrader, shares a similar view on the downside target as the TD Securities crew. “Gold above $1,200 is already pricing in that the phrase will remain, and if it is left out,” writes Baruch, “we expect to see a quick test to the next major support level at $1,178.9 to $1,181.4.”
If gold fell to $1,180, where it bottomed in the summer of 2013, it would be a 2 percent decline from current levels. This past November, gold dropped to a low of $1,130. But not everyone is resting their heads in the bearish camp. George Gero, a precious metals strategist at RBC Capital Markets, reminds us that “this has been a major headwind for a while. Anytime the media started talking about rate rises, gold sold off.” Gero has a hunch the drop in oil prices will provide a boost for gold prices. “I think the sharp drop in energy could be a game changer eventually, as lower costs for consumers could be inflationary this year.”
