From Dovish to Bullish

Gold was hovering around the $1250 and $1260 range; IT took off over $1260 over news doing round in the markets that the U.S Fed would be taking a more ‘dovish’ stance on current and future interest rate hike at the December FOMC meeting.

A “dovish hike” occurs when a central bank raises rates but hints that future such moves will be limited. But this was short lived as gold dropped $20 reaching the low of $1240 an ounce despite the belief that the Fed would be taking a more ‘dovish’ view on the forthcoming interest rate hikes.

Equities were doing well until; a statement released by Powell which ended the splurge and the major U.S indexes fell sharply on 19th December. 

Dow- closed down another 350 points
S&P- off 39 points
NASDAQ –down 147 points.

These downfalls benefited gold. Another fact that supported the precious metals were the numbers that came in from GLD, the world’s largest gold ETF. Around 8 tonnes of golf was deposited bringing the total holding to a highest level of 4 months at 771.79 tonnes.

On analysis the statement following the latest FOMC meeting, and Fed Chair Powell’s subsequent comments, were perhaps less ‘dovish’ than the markets had hoped, particularly following President Trump’s plea not to raise rates.  The Fed was pointing to two interest rate rises next year, instead of three as previously forecast, but U.S. data - and particularly equity performance, could lead to a change of plan at one of the next FOMC meetings - due on January 29-30 and March 20-21. 

 Perhaps one could expect changes in the Fed’s leadership in the New Year, or before, under pressure from President Trump if he sees the independent body as thwarting his ideas on the U.S. position on world trade.

Trade war, US equities, geopolitical crisis, Euro zone and some more factors will have a visible impact on gold. We thus await some concrete news before the markets break for a holiday mood and before the year ends.

But overall things are looking positive for gold and the other precious metals - at least for now hopefully!

Series of Events await for the precious metals market

Gold has been on a five month high, where prices climbed on Monday, with declines in a leading dollar index, Treasury yields and the U.S. stock market, as well as comments from a well-known fund manager, prompting prices to settle at their highest in just over a week.

The gains in gold come ahead of key central-bank policy decisions this week and uncertainty around concrete trade developments between the U.S. and China.

There were a host of reasons responsible for this positive splurge in gold prices-

US Dollar - On Monday, the ICE U.S. Dollar Index was down 0.4% at 97.054. Gold is often sensitive to movements in the dollar. A weaker U.S. unit typically boosts demand for commodities priced in dollars as it makes them less expensive to users of other currencies.

US stock - Benchmark U.S. stock indexes, meanwhile, traded broadly lower as gold futures settled, after ending last week in a rout that pushed the Dow Jones Industrial Average back into correction territory. Stock weakness generally supports gold resulting in an upward movement.

Fed rate hike - Market expectations for 2019 Fed rate increases, once put at three to four more increases, have also begun to lessen on the back of dovish comments from Fed officials, including Chairman Jerome Powell. Fed rate-hike expectations are plummeting. Fed fund futures imply only a good 70% probability of a rate hike at the Fed’s meeting next week, with the probability of another by the end of 2019 likewise at only around 70%.

Expert advice - Double line Capital Founder Jeff Gundlach predicted the U.S. dollar would struggle in the coming new year, and that U.S. equities will enter a bear market. Post this statement; Prices for the metal got an added boost to intraday highs.

Brexit - Brexit is another geopolitical factor whose uncertainty is supportive for haven metals, though, again, the reaction has been muted so far. In the U.K., solutions to the Brexit dilemma are still hard to come by, a background story that is keeping the dollar bid, but not offering much extra boost for precious metals.

Apart from the ongoing activities there are a series of events that await the precious metals markets-

And other monetary policy updates this week, the Bank of Japan will make an announcement late Wednesday and the Bank of England meets on Thursday. The dollar has enjoyed relative strength against the yen and the pound, in part because of the interest-rate differential between the U.S. and its major economic allies. the Bank of Japan will make an announcement late Wednesday monetary policy updates this week, and the Bank of England meets on Thursday China’s Central Economic Work Conference a speech by President Xi Jinping There have been signs if panic in the market resulting in higher volatility. Riskier assets have been under pressure due to geopolitical events.
Currently the highlight is the ongoing US china trade spat and the market needs to see some real signs that point towards resolving some of their differences.

Has the scenario changed for gold

Last week, gold prices had a chance to close at their highest since the middle of July. The fundamental backdrop was a combination of declines in the US Dollar and local front-end government bond yields. Since gold is priced in USD, a weaker greenback makes the precious metal relatively more expensive. As for the latter, when bond yields decline, the non-interest bearing asset looks comparatively more appealing.

Though markets have shown a drastic behavior in the past 10 days, things still good for gold. Though gold has been down almost 4 per cent for the year till date, last week was fairly positive for the yellow metal. No doubt equities have outperformed gold so far but any rally in gold prices and any further weakness in U.S equities will see a reverse behaviour thus gold outperforming stocks in the near future.

The Fed has already appeared to express doubts on the future pace of tightening, although the markets do not anticipate it holding off on the likely 25 basis point interest rate increase at the FOMC meeting in just over one week’s time.  Although a further sharp fall in U.S. equities in the coming week might, just, cause the Committee to change its mind.  It is likely to be under pressure from President Trump to keep interest rates, and thus the dollar, down given his tariff impositions seem to be having the effect of increasing the dollar index and, ultimately, putting up the cost of manufactured goods to the U.S. consumer.

The volatility in equities and dollar was influenced buy the ongoing trade war between China and U.S which appears to have backfired rapidly on the greenback.

The arrest in Vancouver of China’s Huawei Technology’s CFO and the company founder’s daughter in Canada has potentially inflamed the trade relations again.

In the bigger picture, The Fed is in a dilemma over a few factors that don’t fall under its control but will play an important role in the growth of the US economy which will further  influence any decision related to rate hike-

Immigration - President Donald Trump's crackdown on immigration, which translates into fewer workers, especially those willing to take lower-wage jobs, and therefore higher wages

Wage- state-level minimum wage boosts that amount to government-mandated wage inflation.
Truck driver shortage- the countrywide truck driver shortage, which has become "a major reason for all sorts of companies to raise prices  in order to make their customers eat higher shipping costs
Trade war- is the United States' trade dispute with China, further escalated this week by the arrest of the CFO of Huawei, one of China's most important companies. While Trump and China's president seemed to agree to a ceasefire over the weekend, the arrest makes the odds of a good trade deal most unlikely.

All four of these ongoing issues directly affect the Fed's policy, and that's what's putting this independent entity in a bind when it comes to planning for the year ahead and maneuvering other major, economy-altering changes like the rise of workplace automation.

The Fed is simply helpless and can’t do anything about the above mentioned trends. Just in case they won’t work in its favour then rate hike might be delayed which will surely push gold prices high.

Speculators are currently neutral for gold. They don’t believe it will dip neither they have faith in its upside potential. Though markets feel that chances if it going lower are high.
But if we see the long run, gold looks attractive.

Gold prices for the year have decline but look positive in the coming two years. A lower dollar, lower US Treasury yields, a recovery of the Chinese Yuan and higher jewellery demand will result in the upward trend.

Time to buy gold will arrive soon

So far this week looks good for gold as we saw its prices edging higher in Thursday In Asia and it traded near a 5 month high amid U.S. yield curve inversion.

The yield curve inversion triggered concerns about economic growth and a dollar sell-off recently. The two-year/10-year spread was at its flattest this week in more than a decade amid a sharp fall in long-term rates. A flatter curve is seen as an indicator of a slowing economy.

Any slower pace in the economy adds to negativity in growth. This has put pressure in the dollar and further strengthened gold prices. The greenback came under pressure last week when the market took comments from Fed chairman Jerome Powell as signalling a slower pace of rate hikes. Markets still expect the Fed to move forward with a quarter-point hike this month but have interpreted cautious remarks from policymakers to mean that further tightening in 2019 will have to be re-evaluated on economic and inflation data and hence the pull in prices has not been that high.

Furthermore, uncertainty prevails in the market over the upcoming Federal Reserve policy decision, as the Dec. 18-19 meeting looms just over the horizon.

On Wednesday gold hit a high of $1243 an ounce and plunge back to $1233. Though we have gold price moving up this year but the trading range has been sideways because it doesn’t stay at the peak for a long time.

Hence it has been containing most of the price especially since the 11th of October, between 1212 and 1243.  Gold bulls will need the Fed to halt its raising interest rate programme to see a major reversal in the price of gold. Once the Federal Reserve ends the tightening cycle, the time to buy gold will be near

So we can say that if the bulls keep running for gold then it will pick momentum from ere and will be seen crossing the $1243 territory and hopefully cross the July highs of $1257 an ounce.

The coming year looks positive for gold because the dollar is expected to weaken, US treasury yield might be lower, Chinese Yuan expected to recover and demand for jewellery predicted to rise.
And if all falls in place for the bulls then one wouldn’t be wrong if he expects gold to touch the $1400 level.

Will gold witness an upward trend soon

Gold was following a wave like movement during the week as we saw it moving up till Thursday and then diving down by the end of the week.
Gold edged higher for the second consecutive session on Thursday and was placed at the top end of its weekly trading range, around the $1227-28 region during the trading hours.

Spot gold has stood strong against a weaker dollar, with the precious metal’s spot price hovering at around $1228 – one of the highest levels it has seen since 11 November where it hit $1230 per ounce.

The Fed Chair Jerome Powell's comments that rates are just below the neutral level now triggered a broad-based US Dollar weakness and prompted some short-covering trade around the dollar-denominated commodity. This weakness further strengthened the yellow metal and pushed prices higher.

The USD bearish pressure now seems to have abated, though expectations of a slowdown in interest rate hikes, reinforced by sliding US Treasury bond yields, kept pushing the non-yielding yellow metal higher through the mid-European session on Thursday.

Even the prevalent positive mood around European equity markets, which tends to undermine demand for traditional safe-haven assets, did little to prompt any fresh selling around the precious metal or stall the ongoing positive momentum.

The price of gold shot up on Thursday, following Bank of England statement (on 28th November), in which the BoE forecast the UK economy’s performance in the face of the various Brexit outcomes and warned of serious economic contraction with any ‘No Deal’ Brexit.

But post the U.S. data released on Friday, the dollar which was lying flat, gained momentum. Reports released were above expectations and this strengthened the dollar thus pushing gold prices down.

Further, Gold prices fell in the domestic markets too. Investors took this dip as an opportunity to buy. The appreciating (Indian) rupee has brought down prices. At this price level, jewellers and retail buyers are quite comfortable in making purchases.

Local gold prices were trading near their lowest in about three months as an appreciation in the rupee made overseas buying cheaper. Physical gold demand in the world’s second biggest bullion consumer India got a fillip this week from a slide in local rates due to gains in the rupee, while buying was steady in other top Asian hubs.

Though gold hasn’t shown an eye catching gain, it still holds importance in the portfolio of many. If we see closely, gold has been falling since the past seven years. It’s down by more than a third over that period. So clearly, the metal is cheap and makes itself more appealing as a safe haven asset.

The precious metal has been in free fall most of 2018, losing roughly 11% of its value since its January peak. And this year's performance is a continuation of the longer-term trend.

Gold has slowly been trending higher since August. The metal is up a little more than 3% since then. And prices appear to be hitting what analysts describe as "higher lows."

Gold prices have been falling for years. Investors recently hit their most extreme negative sentiment levels in nearly two decades. And now, the price is starting to move back up.

With investors now pricing in only one more rate hike in 2019, markets feel positive for gold and hence it has once again found acceptance in an investment portfolio. Will we see gold in an upward trend soon? Well the answer lies in 2019 as 2018 is about to end and which a holiday mood in the air markets are not expected to be much volatile in the coming days.