Gold’s Best Case Scenario is a Dovish Fed

Gold traders are hoping to hear a dovish statement from the Fed on Thursday afternoon. But even a Fed best-case scenario won’t be able to save gold from its continued slide, some traders argue.

Gold did manage to rise 1.5 percent on Wednesday, one day ahead of the Fed announcement, which will reveal whether or not September will mark the start of a long-awaited tightening cycle. But the precious metal is still down nearly 6 percent in 2015.

“I see gold as essentially in a dead cat bounce right now. It’s still in a long-term cyclical decline,” Boris Schlossberg of BK Asset Management said Wednesday on CNBC’s “Trading Nation.” “If it gets any kind of help from a delay in the Fed rate hike, it’s going to be just temporary.”

A Fed decision to raise its federal funds rate target should theoretically be bad for gold. After all, gold does not pay a yield (on the contrary, it costs money to store) so the asset becomes less attractive in comparison to bonds when short-term rates rise.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza