Gold falls, breaks key level; could have further to go

Commodity Update; Gold – 15 September 2014

Gold falls, breaks key level; could have further to go

Gold came under increasing pressure last week as the Ukraine crisis eased further from headlines and concerns mounted among investors that Janet Yellen and the FOMC may signal, at the FOMC press conference this week, that the first rate hike may come much sooner than many had previously anticipated.

While we do not subscribe to the view that the Federal Reserve will seek to raise interest rates before 2015 is underway, we do acknowledge that there is a growing acceptance within the market that the current gradual pickup in inflation will eventually feed through into wages.

Should this happen then it could force the hand of the FOMC however, we do not envisage a knee jerk reaction to wage pressures from policy makers. Instead, we continue to expect the first move on rates to come sometime in H1 2015, potentially in Q1 if current momentum behind the economy sustains itself into the close of 2014.

Nevertheless, this is not to say that the FOMC will not attempt to prompt market participants into positioning for such an eventual move. This means that comments and suggestions which allude to imminent action cannot be ruled out. Such actions would be likely to come dressed similar to those seen in July 2013 before the eventual taper.

Such talk or action would have negative consequences for gold as they would likely be seen as a further sign that the global economy is turning a corner following years of post crisis recovery.

With last week’s price action having led gold futures to make a decisive break below the $1240 level, we now view the road toward the $1200 level and below as clear.

What remains to be seen is whether Janet Yellen’s comments at the FOMC press conference on Thursday will prove a sufficient catalyst to drive the metal lower.

Spot Gold Hourly Intervals

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