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Gold: Is the US Interest Rate Cut Built In?

Commodities / Gold & Silver Sep 18, 2007 - 10:57 AM GMT

By: Bob_Kirtley

Commodities The consensus appears to be that the Federal Reserve will announce a rate cut at today's meeting of the FOMC. As gold bugs we expect this action to be negative for the US Dollar and therefore positive for gold, or is it?


So we are all at our desks this morning talking up gold and allowing ourselves the luxury of predicting the spot price, gold futures, silver futures and even the what the close will be for your favourite stock come the end of the week.

Well for a moment lets dwell on the old adage of the ‘Buy the rumour and sell the news' We have the rumour now, we are looking for a rate reduction of 25 basis points, some say it could be 50 points.

The following are possible scenarios for gold:

If we get no change it will be negative for gold.
If we get 25 basis points, well its expected.
If we get 50 basis points, we will see a positive effect on gold.

If we take a look at the US Dollar we can see that a slight recovery has already started despite the expectation of a rate cut. Note that the US Dollar has turned up and that the technical indicators have been on the floor in the sell zone but are showing signs of recovery.

US Dollar Chart 18sep07

Taking a look at the gold we can see that gold has gained around $50/oz since Labor Day and almost $80/oz since July. Gold has burst into life but the technical indicators are already at the top of their respective ranges.

Gold Chart 18sep07

No-one knows the future but we suspect that the news of a 25 point reduction is already built in and that will lead to profit taking on gold possibly taking prices down to test $700/oz. As we write gold is trading at $717/oz on the London Stock Exchange. We do not expect gold to do very much today as traders wait for the outcome of today's meeting.

So if you are a trader looking to short gold, today could be the day for you. This is not something that we will be putting in place as our invest account is focused mainly on Canadian gold and silver stocks . The charts for gold stocks are in better shape than the metal so we will ride it out and continue to look for buying opportunities .

Be warned though, going short in a Bull Market is a dangerous strategy. You will need to be on your toes and able to move quickly so it's not for the faint hearted. We will watch the action and allow it to settle before re-assessing the situation.

For ideas on which gold stocks to invest in, subscribe to the Gold Prices newsletter at Gold-Prices.biz completely free of charge.

By Bob Kirtley
www.gold-prices.biz

Bob Kirtley spent many years working on Oil projects including some in Alberta, such as the tar sands installations in Fort McMurray. He lived and worked in many different countries, as that is the nature of the construction business. Planning and cost control are key to a projects success and he tries to apply those disciplines on a daily basis when dealing with investments. His training in such areas as SWOT and Risk analysis can be applied from time to time.  His qualifications include being chartered in the United Kingdom, which is similar to that of a Professional Engineer in Canada, along with a Masters Degree in Project Management from South Bank University, London, England. 

He has been working for a number of years on a full time basis representing a group of investors in England.

DISCLAIMER : Silver Prices makes no guarantee or warranty on the accuracy or completeness of the data provided on this site. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This website represents our views and nothing more than that. Always consult your registered advisor to assist you with your investments. We accept no liability for any loss arising from the use of the data contained on this website. We may or may not hold a position in these securities at any given time and reserve the right to buy and sell as we think fit.

Bob Kirtley Archive

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