Gold recovers from U.S rate cut

(Kitco News) – Gold prices are trading near steady in volatile action in the aftermath of the first U.S. interest rate cut from the Federal Reserve in 11 years. The yellow metal dropped to down around $10 on the day just after the FOMC statement. It could be that the precious metals bulls were initially a bit disappointed the Fed only cut rates by 0.25% instead of 0.50%. Or, it could be the classic “buy the rumor, sell the fact” phenomenon that occurs when the market has fully factored into prices a highly expected outcome of an event. However, gold traders quickly stepped in to “buy the dip” to push gold prices back higher. December gold futures were last down $0.70 an ounce at 1,441.00. September Comex silver prices were last down $0.083 at $16.465 an ounce.

The main economic data point of the week saw the Federal Open Market Committee (FOMC) statement on U.S. monetary policy cut its main interest rate, the “fed funds rate” by 0.25%, to a range of 2% to 2.25%. Most market watchers reckoned a 0.25% interest rate reduction was in the cards, but a few did look for a bigger 0.5% rate cut. The FOMC vote was 8-2 in favor of the quarter-point cut. This was the first rate decrease by the Federal Reserve in 11 years. The FOMC statement said the rate cut was enacted due to very low inflation pressures and concerns about global economic growth. The statement also suggests the door is opened to more interest rate reductions in the months ahead.

The U.S. dollar index actually moved up and hit new highs for the year on the FOMC news, as greenback bulls were happy the Fed did not cut rates by a half-point. U.S. stock indexes sold off a bit and hit session lows after trading firmer before the FOMC statement was released.

Today’s ADP national employment report showed a rise of 156,000 workers in July, which was close to being in line with market expectations. On Friday the more important U.S. employment situation report for July is out. The key non-farm payrolls number is expected to be up around 165,000. In June, non-farm payrolls were up 224,000.

The key “outside markets” today see Nymex crude oil prices higher and trading around $58.50 a barrel. The U.S. dollar index is slightly up and not too far below the new high for the year hit on Tuesday.

Technically, December gold futures prices closed nearer the session low and scored a mildly bearish “outside day” down today. The bulls have the firm overall near-term technical advantage and are keeping in place a nine-week-old uptrend on the daily bar chart. Gold bulls’ next upside near-term price breakout objective is to produce a close above solid technical resistance at the July high of $1,467.00. Bears’ next near-term downside price breakout objective is pushing prices below solid technical support at the July low of $1,396.40. First resistance is seen at today’s high of $1,447.80 and then at the June high of $1,453.70. First support is seen at this week’s low of $1,427.50 and then at last week’s low of $1,423.90. Wyckoff’s Market Rating: 7.5

September silver futures prices closed nearer the session low today. The silver bulls have the solid overall near-term technical advantage. Prices are in a two-month-old uptrend on the daily bar chart. Silver bulls’ next upside price breakout objective is closing prices above solid technical resistance at $17.00 an ounce. The next downside price breakout objective for the bears is closing prices below solid support at $15.835. First resistance is seen at last week’s high of $16.685 and then at $16.75. Next support is seen at today’s low of $16.31 and then at $16.195. Wyckoff’s Market Rating: 7.5.

September N.Y. copper closed down 65 points at 267.20 cents today. Prices closed nearer the session low and hit a three-week low today. The copper bears have the firm overall near-term technical advantage. Copper bulls’ next upside price objective is pushing and closing prices above solid technical resistance at the July high of 280.30 cents. The next downside price objective for the bears is closing prices below solid technical support at the June low of 259.95 cents. First resistance is seen at 270.00 cents and then at this week’s high of 272.65 cents. First support is seen at today’s low of 266.05 cents and then at 264.00 cents. Wyckoff’s Market Rating: 2.5.

By Jim Wyckoff

Kitco News