Gold to rally if Fed doesn't hike

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Gold ETPs recorded net inflows of $116m following more disappointing US economic data.

Although the Fed chairwoman said at the Jackson Hole Symposium that the case for a rate hike has strengthened recently, weaker-than-expected jobs and services sector data provided more reasons for the Fed to not increase interest rates at its meeting on September 20.

Net speculative long positions in gold futures rebounded 13.2% last week, after reaching a 12-week low the previous week.

At the same time, the probability for a rate hike in September fell from 42% following Yellen speech at the Jackson Hole to 28% last Thursday. However, Fed’s Rosengren warned last Friday on the rising risks of low interest rates on the US economy pushing the odds to 30% and weighing on the price of gold, down 1% on that day.

We expect the price of gold to reach $1,440/oz. by June 2017.

Silver continue to benefit from its safe haven property

Last week saw net inflows of $16m into silver ETPs for the second consecutive week, benefitting from the popularity of gold.

Net speculative long positions in silver futures also rose for the second consecutive week last week, by 5.5% to 2.3 times above the 5-year average.

Silver has had a stronger rally than gold year-to-date, up 40% compared to 26% for gold. Subsequently, the gold/silver ratio dropped 11% over the same period and now stands 11% above its historical average.

This potentially indicates that silver catch-up as safe haven may be near the end with further upside potential likely to lie more on the demand for the metal’s industrial properties.

Edith Southammakosane is director Multi-Asset Strategist at ETF Securities