A week in gold: Fed fuels rate rise fears

New York (Aug 23)  The trajectory of the gold price sounded like a Status Quo song for most of this week: down, down, deeper and down.

It was only on Friday that the yellow metal pulled out of its slump, after comments from Janet Yellen, chair of the US Federal Reserve, allayed fears that the next interest rate rise in the US might happen earlier than previously expected.

Yellen’s comments took some of the sting out of the hawkish hints in minutes from the latest Federal Reserve policy makers meeting.

A growing number of the Fed Open Market Committee’s members see an early rate rise as ‘appropriate’ if the targets for employment and inflation are hit quicker than expected.

It was a clear change of tone from previous meetings and unsettled Fed watchers who had been predicting a benign outcome ahead of the Jackson Hole central bank symposium.

The most actively traded gold futures contract (December) hit its lowest level since June 18 in the wake of the release of the FOMC’s minutes, the fifth successive day of decline.

Friday saw the price of the yellow metal head higher, however, helped by news that Russia bolstered its reserves with the purchase of US$400mln worth of gold last month.

The eastern European powerhouse has been consistently topping up its reserves over the last few months, and in July it bought another 35.5mln ounces.

Russia’s reserves have practically tripled since the end of 2005, and the country now has more of the stuff in its vaults than China and Switzerland. It has the world’s fifth largest stockpile of gold and is also the world’s third largest producer.

Eugen Weinberg, the head of commodities research at Commerzbank in Frankfurt, suggested it part of a long-term strategy that also includes diversifying its foreign exchange reserves.

Gold accounts for about just under one-tenth of Russia’s total reserves, according to The World Gold Council.

Source: ProactiveInvestors