As markets are still guessing when the Federal Reserve will begin hiking borrowing costs, one analyst says it is important to concentrate upon the central bank's policy decisions to figure out the precious metal's direction in general and gold in particular.
Commenting on the widely expected U.S. rate hikes, Metals Focus’ Phil Newman said he thinks it is
the biggest issue for the precious metals markets from a price point of
view.
"Of course, it’s a bit of a moving target. If you look at the
sentiment in the market, it’s very much shifted for rates to be
increased in 2016 now," he said.
Looking at silver, where there was a significant influx of retail
demand on lower prices, Newman said he doesn’t see these types of retail jumps having a weighty impact on the metal’s price.
"Retail
investment demand is very important for the metal but in volume terms,
it’s still quite modest in terms of overall silver demand," he
explained.
"What you really need is to have institutional demand come
back into the market and that will be a key determinant to see prices
move higher for silver." Overall, Newman expects the precious metals to stay weaker once the Fed raises rates. However, once that first
move is made, the metals may move higher.
"We should probably see more weakness come back when the rate hike actually does happen," he said. "Once that’s out of the way, that should really clear the deck for prices to start moving higher in sort of a gradual way, more constructively for the longer term."
