A perfect example of how speculation surrounding government policy announcements can affect the price of commodity futures is the appreciation that gold contracts enjoyed on January 14, as global market participants looked to a meeting of Federal Reserve officials scheduled for later in the week.
Gold contracts for February delivery on the Comex division of the New York Mercantile enjoyed significant price increases, trading $10.60 per ounce higher at $1,671.10, according to Kitco News.
Fed speculation
MarketWatch reports that global investors will scrutinize the speeches made by the Federal Reserve officials in an effort to figure out what the central bank will do next in its stimulus plans. Federal Reserve Chairman has a speech scheduled for Thursday, January 17 at the University of Michigan. In addition, other officials working for the nation’s central bank have speaking appearances scheduled throughout the week.
Charles Evans, president of the Federal Reserve Bank of Chicago, recently told a group of people in Hong Kong that monetary policy needs to generate the strongest growth and demand it can without generating substantial changes in prices, according to the news source.
“There have been more hawkish noises coming from certain Federal Open Market Committee members of late, and any signs that suggest the recovery is on track or that inflation risks are heating up would lend weight to their calls for an earlier end to accommodative policies,” Ben Traynor, chief economist at BullionVault the media outlet.
Contributors to price appreciation
Although the Federal Reserve speeches and the signals they could provide about central bank policy have been cited as a major contributor to gold prices, market experts have identified other factors that could be causing it to rise in value. Kitco News reports that this sharp increase in price can be attributed to various causes that have served to increase the appetite that investors have for risk.
According to the news source, the willingness that these global market participants have for tolerating risk has risen along with the new year, and it is a possibility that investors worldwide have started putting money back into commodities after their funds sat idle.
The media outlet reports that overnight, increased beliefs that the European Union has hit a crucial point in overcoming its debt challenges caused both the euro and the region’s equities to push higher. The U.S. dollar index was higher early in trading, after rebounding from some sharp declines in the recent past.
When the dollar is stronger relative to other currencies, it generally puts downward pressure on the prices of commodity contracts denominated in the greenback. Earlier in trading, the price of the dollar index fell to its lowest value in three weeks.
Economic Data
Another factor that could potentially impact the price of gold futures is economic data that will be released by both China and the United States later in the week. Traynor stated that that the U.S. retail sales and consumer price data are notable, according to MarketWatch. He said that Chinese economic data, including figures related to the nation’s fourth quarter gross domestic product, are scheduled to be released on Friday, January 18.
“Any slowdown in China would likely have significant ramifications for gold demand given the huge role China plays in the global gold market,” he stated.
The gains that gold futures enjoyed on Monday came after the February contracts declined $17.40 per ounce on Monday, after markets responded to Chinese inflation data that surpassed expectations.
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