Fewer rate hikes may support gold

Financial and commodity markets analytics

The Gold price has continued to rally today after yesterday’s release of consumer price index figures from the US threw into doubt the ability for the US Federal Reserve to lift interest rates much higher from current levels.

Data out from the bureau U.S. consumer prices increased by a seasonally adjusted 0.2% during August which was below expectations and comes on the back of Wednesday’s producer price Index figures which also hit the market below expectations.

The news is not expected to derail plans for the Fed to go ahead and raise interest rates this month but the chances of a follow up rate hike in `December have now fallen.

"With the data falling short of expectations, investors are thinking that the Fed might not go for a rate hike in December, even though a hike in September is definite," said Ji Ming, chief analyst at Shandong Gold Group.

The key to gold’s near tem fortunes is the ability to stay above the physiological $1,200 level and if this is maintained we may see the precious metal push higher and especially if any more negative data comes out of the US which will further damper expectations for more rate hikes.

"If prices stay around $1,200 levels, it means the markets are still positive. People who shorted below could come and cover, driving prices to $1,250," said Hidetaka Namiki, chief executive at Asset Management firm Bullionist Capital.

"By looking at the weakness in emerging market currencies and equities being overbought, people are just waiting for the turnaround in gold" he added.


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