Commodity Trade Mantra

Gold Retreats as US Fed Members Turn Hawkish in Rate Hikes

Gold Retreats as US Fed Members Turn Hawkish in Rate Hikes

Gold Retreats as US Fed Members Turn Hawkish in Rate Hikes

US markets traded higher

US markets were trading on a higher note on March 21, 2016, as US Federal Reserve officials advocated an early hike in interest rates on expectations that inflation rates will reach the Fed’s target level of 2%. On the other hand, major currencies dipped due to strength in the US dollar index, driven by hawkish comments by Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, and John Williams, president of the Federal Reserve Bank of San Francisco.

Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, was also optimistic regarding early rate hikes, stating that a reduction in volatility in the near term will be crucial in increasing the benchmark rate. The US Federal Reserve left the policy rate unchanged at 0.25%–0.50% during the recent monetary policy meeting on March 16, 2016.

The S&P 500 Futures Index rose by 0.22%. Also, the NASDAQ Futures and the Dow Jones Industrial Average rose by 0.38% and 0.22%, respectively. The US dollar index was trading higher by 0.25% as investors became bullish on the US economy.

Gold prices retreated following the rise in the US dollar index. Gold had been gaining traction earlier last week following a dovish report by Janet Yellen, the US Federal Reserve chairperson. With investors offsetting their positions to take profits and a hawkish view by other Fed members, the sentiment for gold seems to be negative.

The iShares Gold ETF (IAU) was trading lower by 0.83% while the SPDR Gold Shares ETF (GLD) decreased by 0.74% on March 21, 2016.

Existing home sales fall in February

Existing home sales across the United States, reported by the National Association of Realtors,  dropped in February by 7.1% on a monthly basis, lower than the estimated forecasts of a 2.2% decline and below the previous month’s increase of 0.4%.

Although economic growth has been consistent, the slowdown in the housing sector is a cause for concern. However, an improving labor market is expected to boost the household segment as wage growth increases.

Impact on ETFs across sector SPDRs

The metals and mining and energy sectors took negative cues on March 21, 2016. As for sector-specific SPDRs, the SPDR S&P Biotech ETF (XBI) was the outperformer among major sector-specific ETFs, rising by 2.5% on Monday, March 21, 2016, at 3:00 PM EDT.

The Health Care Select Sector SPDR ETF (XLV) and the Industrial Select Sector SPDR ETF (XLI) were also trading higher by 0.67% and 0.35%, respectively. On the other hand, the Financial Select Sector SPDR ETF (XLF) fell by 0.09% on Monday.

Among the major sector-specific SPDRs trading on a negative note, the Materials Select Sector SPDR ETF (XLB) fell by 0.87%. The Energy Select Sector SPDR ETF (XLE) and the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) fell by 0.50% and 0.45%, respectively.




Courtesy: David Meyer

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  • Mr. L

    “…while the SPDR Gold Shares ETF (GLD) decreased by 0.74% on March 21, 2016.”

    I’ve been trying to do my due diligence on this fund. Anyone know why there is a clause in the GLD prospectus that states GLD has no right to audit subcustodial gold holdings? Why would the organizations behind GLD forfeit this right and create such a glaring audit loophole? I have not heard a single good reason for the existence of this loophole thus far. It also doesn’t help that GLD claims to be fully backed by physical gold bullion but yet it refuses to give retail investors the right to redeem for any of these ‘claimed’ gold bullion. There are a number of other red flags as well from what I’m reading:

    “Did anyone try calling the GLD hotline at (866) 320 4053 in search of numerical details on GLD’s insurance? The prospectus vaguely states “The Custodian maintains insurance with regard to its business on such terms and conditions as it considers appropriate which does not cover the full amount of gold held in custody.” When I asked about how much of the gold was insured, the representative proceeded act as if he didn’t know and said they were just the “marketing agent” for GLD. What kind of marketing agent would not know such basic information about a product they are marketing? It seems like they are deliberately hiding information from investors.

    I remember there was a well documented visit by CNBC’s Bob Pisani to GLD’s gold vault. This visit was organized by GLD’s management to prove the existence of GLD’s gold but the gold bar held up by Mr. Pisani had the serial number ZJ6752 which did not appear on the most recent bar list at that time. It was later discovered that this “GLD” bar was actually owned by ETF Securities.”

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