Whereas gold has bounced sharply since its late-November lows, TD Securities still anticipates weakness in the months ahead as expectations for tightening from the Federal Open Market Committee continue. “Given that TD Securities expects the Fed to start removing monetary accommodation in the early part of H2 2015, a firming U.S. dollar throughout the next year and spec exhaustion, we are sticking to our guns and remain quite negative on gold for much of the early part of 2015,” TDS says. “Indeed, it would not at all be surprising if gold dropped below $1,100/oz in the early part of 2015. The upcoming FOMC communiqué (on) Dec. 17th may be the catalyst which sends gold into a freefall toward new cyclical lows. Following a strong U.S. employment market report, the U.S. central bank is quite likely to remove the pledge to keep rates low for a ‘considerable time.’ This no doubt would bring forward the timing for the first rate hike away from the zero bound…. The prospects of higher rates increase carry costs and the opportunity to hold gold relative to fixed-income assets. Similarly, the prospects for an earlier-than expected increase in the Fed funds would help the U.S. dollar to continue its impressive rally—which is traditionally bad for gold. The big downside risk for gold and upside risk for the U.S. dollar could come to fruition if the ECB (European Central Bank) undertakes some sort of unexpectedly aggressive asset purchase action in early-2015 as happened in the aftermath of the BOJ QE (Bank of Japan quantitative-easing) program augmentation announcement.”
