FxWirePro: A glimpse through bullion spot, futures and ETFs vs softer dollar ahead of Fed

At present the bullion market seeks the opportunity of the Fed not hiking interest rates as frequently as the bank itself supposes due to predominantly disappointing inflation data this year even though prints upbeat data in the recent season. This risk is reflected in the notably lower market expectation for the Fed Funds Rate, but also in a struggling dollar. Following the strong August inflation data last week this risk has fallen.

However, considering the cautious comments from several FOMC members last week it is unlikely that the statement or Fed chair Yellen’s subsequent press conference will manage to convince the market today that it can ditch its skepticism, correct rate expectations notably to the upside and drive the dollar up.

Not only have retail investors turned very strong buyers of bond funds this year, but they appear to have primarily bought bond funds with higher duration. The duration impulse of bond ETFs in particular has risen even more steeply this year relative to 2016 or 2015. Gold ETFs are passive investment instruments that are based on price movements and investments in physical gold. The dilemma is participating out in ETFs. The put/call ratio of SPDR Gold Shares, the largest ETF backed by the metal, is the highest in two years, signalling bearish sentiment may be gaining momentum. 

On the softer US dollar, the yellow metal price in this week (from last two-three days) has been oscillating between the highs of $1320.26 and the recent lows of $1304.40 ahead of the Federal Reserve's highly-anticipated monthly policy decision due later in the day.

As the gold prices are sensitive to dollar and USTs, Comex Gold futures for December month delivery are trading unchanged and in a tight range shortly before the regular session opening. Traders are watching U.S. Treasury yields, the U.S. Dollar and demand for higher risk assets.