Gold looks to the FOMC minutes

Gold investors will be looking at the FOMC minutes very carefully on Wednesday. Gold traders will want to get a clue on gold’s near term direction. Gold has been sold recently on a firmer dollar and hope of a coronavirus vaccine. The optimism surrounding the Pfizer and BioNTech vaccine resulted in US10 year yields moving higher towards 1.00% around Nov 09. The news also prompted the biggest daily loss in gold futures in around 7 years. Since then there there has been strong outflows in ETF holdings.

Chart

So, gold has two conflicting cases to balance.

The sellers case

A vaccine is on the way. This will precede a return to normality and a return to rising rates. In this view gold can be sold now as the crisis and gold’s long term appeal is over. Or if not over, certainly less appealing right now in the immediacy.

The buyers case

Buyers are still confident as low interest rates are seen to be here for years and record QE purchases alongside huge stimulus packages will keep the appeal of gold alive over the medium/longer term. On top of this the physical demand should pick up for the Lunar New year as China starts buying gold again. Gold can still be bought, but there may be a short term flush lower which won’t last.

The minutes in focus

In light of these two cases the Fed’s minutes will be viewed carefully tonight due to the conflict between Secretary Mnuchin and Fed Chair’s Jerome Powell over whether to preserve emergency lending programs which makes the prospect of further stimulus uncertain. If the US Gov’t and the Fed are seen to be not coming to rescue the US economy then expect more near term gold sellers. However, if traders can see clues from the minutes that the Fed will move to support the US economy then expect gold buyers to step in once again.

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