Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21
How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
The Only way to Crush Inflation (not stocks) - 14th Oct 21
Why "Losses Are the Norm" in the Stock Market - 14th Oct 21
Sub Species Castle Maze at Alton Towers Scarefest 2021 - 14th Oct 21
Which Wallet is Best for Storing NFTs? - 14th Oct 21
Ailing UK Pound Has Global Effects - 14th Oct 21
How to Get 6 Years Life Out of Your Overclocked PC System, Optimum GPU, CPU and MB Performance - 13th Oct 21
The Demand Shock of 2022 - 12th Oct 21
4 Reasons Why NFTs Could Be The Future - 12th Oct 21
Crimex Silver: Murder Most Foul - 12th Oct 21
Bitcoin Rockets In Preparation For Liftoff To $100,000 - 12th Oct 21
INTEL Tech Stock to the MOON! INTC 2000 vs 2021 Market Bubble WARNING - 11th Oct 21
AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
Stock Market Wall of Worry Meets NFPs - 11th Oct 21
Stock Market Intermediate Correction Continues - 11th Oct 21
China / US Stock Markets Divergence - 10th Oct 21
Can US Save Taiwan From China? Taiwan Strait Naval Battle - PLA vs 7th Fleet War Game Simulation - 10th Oct 21
Gold Price Outlook: The Inflation Chasm Between Europe and the US - 10th Oct 21
US Real Estate ETFs React To Rising Housing Market Mortgage Interest Rates - 10th Oct 21
US China War over Taiwan Simulation 2021, Invasion Forecast - Who Will Win? - 9th Oct 21
When Will the Fed Taper? - 9th Oct 21
Dancing with Ghouls and Ghosts at Alton Towers Scarefest 2021 - 9th Oct 21
Stock Market FOMO Going into Crash Season - 8th Oct 21
Scan Computers - Custom Build PC 6 Months Later, Reliability, Issues, Quality of Tech Support Review - 8th Oct 21
Gold and Silver: Your Financial Main Battle Tanks - 8th Oct 21
How to handle the “Twin Crises” Evergrande and Debt Ceiling Threatening Stocks - 8th Oct 21
Why a Peak in US Home Prices May Be Approaching - 8th Oct 21
Alton Towers Scarefest is BACK! Post Pandemic Frights Begin, What it's Like to Enter Scarefest 2021 - 8th Oct 21
AJ Bell vs II Interactive Investor - Which Platform is Best for Buying US FAANG Stocks UK Investing - 7th Oct 21
Gold: Evergrande Investors' Savior - 7th Oct 21
Here's What Really Sets Interest Rates (Not Central Banks) - 7th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Will The Fed Hike In December & What Does This Mean For Gold Prices?

Commodities / Gold and Silver 2015 Nov 02, 2015 - 02:01 PM GMT

By: Bob_Kirtley


The October statement from the Fed made one thing very clear; December is a live meeting and Fed is ready to hike rates if it sees fit. Yellen was more hawkish than the market was expecting, sending gold prices lower and bond yields higher. The critical focal point from here will be if the Fed’s hawkish stance will be validated by the upcoming economic data, most importantly the two employment releases we get between now and the December FOMC.

Employment data had been solid for the last few years, indeed the Fed shifted its focus from employment to inflation, reflecting that their mandate of achieving full employment was nearly accomplished. However the last two prints of +136k and +142k have put a spanner in the works. Are these one off points like the +119k we got earlier this year? Or is this a change in the health of the economy which could see the first rate hike delayed?

As mentioned above, we read the statement as a clear attempt by the Fed to keep a December hike on the table. Given that market pricing had been leaning towards only a 20-30% chance of a December hike following the NFP data, if the Fed had been any less hawkish they would likely have pushed December out of consideration. Since this is the first hike in such a long time, and part of unwinding the biggest easing of monetary policy the world has ever seen, the Fed would likely be hesitant to raise rates with very low market implied probabilities of policy action. The market is now pricing much closer to a 50% chance of a December hike, giving the Fed flexibility to raise rates if they wish. If the markets are still only pricing 20-30%, the Fed would likely not hike for fear of causing instability.

50% is probably fair pricing for December, given the uncertainty over data. If the next two payrolls figures are solid (+200k), the Fed will increase rates in December. If they are weak (+100K) then the Fed will delay hiking, and rightly so, as they will be cautious and concerned that the employment market is seriously softening. Those are the two easy solutions, but the grey area will come if the employment prints are mediocre.

What If Data Prints Grey

If the data is simply average from now until December, in our view the Fed will hike rates. Our reasoning for this is due to creditability and stability.

On credibility, the Fed has been saying all year that they plan the raise interest rates in 2015. Every dot plot has shown this, and the Fed has delayed and delayed again for a number of reasons over the past few years. In the absence of a smoking gun reason not to hike, the Fed would lose credibility if they remained on hold. The market would doubt that the Fed will ever be able to get off zero. Even if the Fed stressed that they could hike in early 2016, the market would not believe it.

On stability, the Fed would prefer a meeting with a press conference and projection materials to deliver their first hike. December is such a meeting, but January is simply a statement with the next press conference being in March. Whilst Yellen has stated that they could hold an impromptu press conference, it is highly unlikely that after a record time on zero, the first hike would be delivered with an impromptu tone. This would risk causing unnecessary volatility in markets. In addition to this January meeting on the 27th would only give the Fed a minor amount of additional data compared to December, for example there is just one more employment print between the meetings.

Therefore if the Fed does not go in December, they will have to wait until March to hike. That could be too long. In our view, if Fed is this close to hiking, then they are best to execute the first hike in December, with minimal surprise to markets.

Fed speakers between now and the December meeting will be key. The Fed will want to ensure the market is fully prepared. Therefore expect pricing to drift towards 75% if the data is solid, encouraged by hawkish Fed speakers.

What does this all mean for gold?

The simple answer is that a hike is bearish for gold prices, as it will reduce the need to hold gold as a financial asset and the USD strength resulting from a hike will see gold fall in USD terms. To demonstrate this the chart below shows the price of the front Eurodollar futures contract (Currently December) and gold prices. The futures price is quoted as 100 minus the 3mth Libor rate. Therefore a lower price means a higher expected 3mth yield. So as the chance of a Fed hike increases, the Eurodollar price falls. It is clear that generally gold has been falling and rising with the Eurodollar price, indicating its sensitivity to Fed policy.

If market pricing increases past 50% and towards 75% as we expect it to, as a result of solid employment data and Fed speakers talking up the chance of a December hike, the Eurodollar price will fall to new lows. Therefore we would expect gold to also fall to fresh lows.

Technically on the downside $1125 is the next support, and should that break we would expect gold to fall swiftly towards $1080. A catalyst will be needed for this to break and that catalyst will likely be the NFP data this Friday.

Trading Gold on the First Rate
We currently have short position in gold, via a few different option strategies. However we are not aggressively short the yellow metal here, and have not been since the start of 2013, when we turned our long term bullish stance to a bearish one, reflecting that the easing of monetary policy in the US had come to an end.

The reason we are not aggressively short gold at this stage is due to the data risk. Monetary policy and therefore gold prices are massively leveraged to the next few data prints. Employment data is a lottery and therefore having too large a position is similar to taking a coin flip. That is not a prudent way to manage capital and take risk.

Our current position will lose us a small amount of money if we are wrong, but could pay off considerably should we be correct. If this payrolls print is strong, we will add to gold shorts. Any kind of positive backward revisions would see us shorting gold aggressively with $1030 (the pre QE2 resistance that is now a major support level), as an initial target.

Holders of gold mining stocks are unfortunately in for yet more of the same under this scenario. Whilst we are without a position in gold stocks at present, we are looking for opportunities to establish short positions. Despite October being the best month since 2009 for equities, gold stocks barely outperformed the S&P 500, even though gold gained 2.25% over the month. We are concerned that a pullback in stocks, combined will a fall in gold prices in a December hike situation would see gold stocks fall to yet another low, even though the HUI index is already down 25% in 2015.

For now the next stop is this US Employment data this Friday. Following that we will reassess the situation, but as things stand a December hike by the Fed is more likely than not, which is bearish for gold prices in the short term. To view our full trading record and find out more about subscribing to SK OptionTrader please visit

Go gently.

Bob Kirtley

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. Winners of the GoldDrivers Stock Picking Competition 200

DISCLAIMER : Gold 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

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in