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Gold Nears Three-Week Low before September 17 FOMC Meeting

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Upcoming FOMC meeting

Gold prices are currently nearing a three-week low. Gold futures for December delivery settled at $1,121.40 per ounce as of September 4, the third consecutive down day for gold. Trading volume for the futures contract on COMEX (Commodity Exchange) has also been on a downward slide, falling ~1.62% in three trading days.

As gold prices may be affected by the FOMC (Federal Open Market Committee), all eyes are on its upcoming meeting scheduled for September 17. The probability of a gold price lift-off in September, December, or beyond, will also depend on the US economic outlook.

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Looking at the Gold Futures versus US Dollar Index chart above, we can see that the US dollar has risen 6.51% on a year-over-year basis and gold has fallen 5.65% on the same basis. The chart shows an almost inverse relationship between gold and the US Dollar Index. Gold is dollar-dominated, costing more as the dollar gains. As the US economy strengthens, we can expect the country’s currency to appreciate. This will most likely have a negative impact on gold.

Other bullions and ETFs

Silver for immediate delivery fell 1.07% on September 4. It has fallen ~6.8% on a year-over-year basis. Platinum and palladium also had a down day on Friday, September 4, falling 1.75% and 0.76%, respectively.

Most of the gold ETFs also fell. The Global X Silver Miners ETF (SIL) fell 0.93%. The VanEck Vectors Gold Miners ETF (GDX) traded flat, rising a marginal 0.07%. GDX traded at $13.39 per share as of September 4. Studies show that investors are opting out of the gold-backed ETFs, as holdings were down 880 metric tons in 2013 to ~159 metric tons in 2014.

Miners’ 20-day moving average indicator

The downward slide on metal prices has had a negative impact on miners. First Majestic Silver (AG), Barrick Gold (ABX), Agnico Eagle Mines (AEM), and Pan America Silver (PAAS) are all trading below their 20-day moving average prices as of September 4. The current prices for these stocks are $3, $6.41, $22.81, and $6.62, respectively.

The fact that current prices are lower than the moving average prices likely indicates undervaluation. The 20-day moving average prices of these stocks are $3.53, $7.33, $24.34, and $6.8, respectively. These four stocks together determine ~14% of the price movements in GDX.

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