Gold extended to new highs for the week in overseas trading, but has since been consolidating the solid gains seen after the Fed’s policy decision yesterday. Silver on the other hand, was unable to sustain the rebound above $16.
Today’s generally better than expected U.S. economic data and steady policy from both the BoE and ECB are providing some support for the dollar, which is a bit of a headwind for gold. With the Fed raising rates and the other major central banks still on hold, the divergence will tend to favor the dollar.
That being said, the Fed’s continued concern about low inflation and slow wage growth may temper tightening expectations if those conditions persist into the new year. As noted yesterday, at some point the central bank is going to have to give up on the notion that the situation is “transitory.”
The World Gold Council’s investor report focuses on Germany, but this paragraph in introduction is a nice thumbnail sketch for the gold market at this point:
That fits nicely with the seasonal patter that has emerged in recent years, where gold has bottomed around the time of the December FOMC meeting and rallied into the new year. Yesterday’s initial post-FOMC rally is encouraging, but some upside follow through is needed to further bolster confidence in the upside.