US Fed will announce its interest rate decision at its December policy meeting this Thursday. It is now widely believed that the Fed rate hike is very likely.
Where will metals prices head if the Fed raises its benchmark rate? SMM interviewed Chen Shiyuan, an Economist from Bloomberg.
The market expects the Fed to raise interest rate at its December policy meeting after continuous improvement in US economic growth, employment and inflation data, Chen said. After Trump won US presidential election, US stock markets unexpectedly surged. Fiscal stimulus measures expected to be pushed by President-elect Trump also increase market expectations of US inflation next year. This added to the likelihood of the Fed rate hike.
Base metals mainly hinged on China’s demand and capacity restriction this year, and any effect from possible Fed rate hike will be limited on base metals, unless the rate hike unexpectedly shakes global market, Chen said.On the precious metals front, if the US dollar weakens after a likely Fed rate hike, gold may strengthen. But overall, precious metals will be weighed on in the long term against improving economy in the US and downward trend for Chinese economy.
Zambia Copper Output to Rise to 800,000 tonnes in 2017
The Ministry of Mines & Minerals Development said Zambia’s copper production is expected to increase to 800,000 tonnes in 2017 due to commencement of new mining project and stabilizing international copper prices, wenhua.com reported.Data from Zambian Ministry of Finance & National Planning show copper output was 575,780tonnes in the first nine months of 2016.
The price of gold seems to have found some short term support and is moving up from the month low near $1,151.07 per ounce. The rebound, albeit a small and unconvincing one which is barely treading water, comes just before this Wednesday’s Federal Open Market Committee (FOMC) monetary policy decision. This announcement will directly influence, not only the price of the yellow metal, but the US Dollar.
Price action is well below the 200 day moving average as well as the 10 period exponential moving average (EMA) which is near 1,173.55. Should Dollar strengthen, then gold will continue to move lower. Should the US Dollar weaken, then gold should move higher and towards the 200 day moving average at $1,276.30 per ounce.
Gold is very sensitive interest rates. Rates lift the opportunity cost of holding non-yielding assets like the yellow metal and with the increasing likelihood of the Fed raising interest rates at their FOMC meeting, investors continue to move out of the bullion.The Fed is likely to raise rates for the first time this year from 0.25 percent to 0.50 percent. This would be a 25 basis point increase.
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