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Showing posts with label Election. Show all posts
Showing posts with label Election. Show all posts

Wednesday, 1 March 2017

Effect of Presidential Election and BREXIT on Bullion Market

So Far, bullion has witnessed a 9.6 percent rise in prices mainly due to the prevailing political uncertainty over Trump’s unorthodoxy, European elections and Brexit ruffle confidence.
The yellow metal reached near a four month high last week amid intensified political uncertainty in the U.S. and the EU.

All precious metals have made gains, gold, silver, platinum and palladium, as both the euro and the dollar weakened over the week. Let's take a look as to what factors contributed to the rise and how far an important role will they play in the near future.

US uncertainty- Gold prices have hit a four month high to reaching their highest level since Donald Trump won the election.


The metal is considered as a safe haven asset for money and values rise when markets are in turmoil or in times of uncertainty. This sentiment has raised the demand for gold especially from investors thus pushing  its prices higher.

As markets await a major speech by US president Donald Trump, we saw equates retreating and dollar hesitating thus strengthening gold prices and shaking off most of the losses incurred following the surprise election result, as markets continue to unwind Trump trade.

Fed Rate Hike- Last Wednesday's release of minutes from the last FOMC meeting on January 31 – February 1 struck a slightly more hawkish tone as Fed members discussed the appropriateness of another rate hike 'fairly soon.' concerns over the risks and uncertainties surrounding the Trump Administration's fiscal stimulus plans as well as a strengthening US dollar tempered that hawkish stance. In the end, markets were once again left with continued ambiguity regarding the pace of monetary policy tightening in the coming months. Indeed, the Fed Fund futures market still saw a low percentage probability of a March rate hike – in the high-teens to low-20's – a day after release of the FOMC minutes. This sustained policy uncertainty helped weigh on the dollar while boosting the price of gold further. Reduced expectations of a US rate hike in March following the release of the minutes from the US Federal Reserve's last meeting are also helping gold.

EU elections- Despite the virtually relentless rally in US and global equity markets, geopolitical risks continued to abound, particularly in Europe. Article 50, which officially begins the process of separation between the UK and European Union ('Brexit'), is slated to be triggered no later than in March. A former European Commission official has recently stated that the triggering of Article 50 could lead to a 'complete breakdown' of UK/EU relations.

Additionally, France's far-right, anti-EU presidential candidate, Marine Le Pen, is leading in polls for the first round of the upcoming French elections. Although she is not currently favored to win against frontrunner Emmanuel Macron, any surprise victory by the populist/nationalist Le Pen will undoubtedly lead to serious questions about the future of the EU.

Geopolitical worries and political concerns in the EU continue which is leading a flight to safety bid in gold futures market and gold exchange traded funds (ETFs) and demand for safe haven gold bullion.

Dollar- The dollar looks vulnerable due to the uncertainty about US President Donald Trump and the new U.S. administration's policies. Overnight Trump attacked China and accused the Chinese of being ‘grand champions’ of currency manipulation.

This alone is quite bullish for gold. It does not create confidence about trade relations between the world's two biggest economies and it suggests that we may be about to embark on the next phase of the global currency wars.

The US president is to deliver his first speech to US Congress next week, after US Secretary of the Treasury Steven Mnuchin on Thursday said the impact of fiscal stimulus this year on the economy might be limited.

Amid these uncertainties in Europe as well as those in the US under the Trump Administration's still-hazy policy trajectory and the Fed's murky monetary policy, gold has continued to extend its sharp uptrend that began after price bottomed out around the $1125 support area in late December.

Tuesday, 29 November 2016

Roller Coaster Gold ride edges lower as US dollar regains strength

Gold has been witnessing downward pressure since the past two weeks. But in the last week this pressure became so austere that we saw gold dipping to its nine month low below the important$1200 level. At $1180 gold hit its lowest level since early February. Furthermore, Good US economic data, which caused the US dollar to appreciate, had fuelled the next wave of selling on last Thursday noon.

The US dollar index climbed to its highest level since March 2003. Furthermore, US stock 
Markets continued to rise, which suggests on-going high levels of risk appetite among market 
Participants, while yields on ten-year US Treasuries climbed above the 2.4% mark again for 
the first time since July 2015.

The US dollar index has continued to strengthen amid positive US economic data while putting pressure on the gold price. The index had reached as high as 102.05 on Thursday, the highest since March 2003.



In addition, gold ETF’s witnessed massive outflow, thus reducing their holding by 13.7 tonne putting them at a five-month low of only a little over 1,900 tons. This was already the tenth consecutive daily outflow.

During this period, ETFs have had their holdings cut by a total of 101 tons. 

Although gold in euro terms is faring somewhat better thanks to the firm US dollar, at €1,122 per troy ounce it nonetheless fell to its lowest level since early October. 

The spot gold price eased during Asian trading hours on Friday November 25 as a strong US dollar continued to weigh on the yellow metal.

The US was closed for Thanksgiving holiday on Friday which resulted in quieter trading leading into the weekend.

Gold recovered from an earlier nine-month low and moved into positive territory on the morning of Friday November 25 in London, reflecting a pause in the dollar’s rally.

This sentiment continued for this week, giving gold a positive opening on Monday.

Gold was in positive territory on the morning of Monday November 28 in London, with a slightly weaker dollar generally underpinning precious metals prices.

The dollar index was recently at 101.05, having been as high as 102.05 in the previous week, it’s highest since March 2003.

The spot gold price was recently quoted at $1,192.00/1,192.30 per oz, up $8.20 on the previous close. Trade has ranged from $1,187.05 to $1,197.70 so far.

The spot gold price edged lower during Asian trading hours on Tuesday November 29 as the US dollar regained strength.

Growing sense of ‘opportunity cost’ among investors could be behind a surprise fall in the value of gold, after the precious metal failed to live up to its status as an inflation hedge and safe asset.

Softer spot prices may encourage physical demand while the holiday seasons in both Asia and Europe approach.

Before the UD election, gold was expected to trade unpredictably but now that prices have more or lessstabilised, market for gold is expected to be bullish. Moreover, Mr. President has been talking tough on trade which further raises uncertainty and create nervousness in the market thus keeping the bullish trend alive for the yellow metal.

Gold should provide a good hedge against fallout from what political policy changes lay ahead, as well as from any correction in super-charged markets.

The commodity, traditionally regarded as a safe haven for skittish investors, was among those assets viewed as a potential winner in a year marked by significant market shocks and rising inflation expectations – which many now predict during a stimulus-happy Donald Trump presidency.

This sentiment, however, is yet to be borne out by the price of the precious metal. While other hedges such as inflation-linked bonds have performed relatively well, gold has been trending downwards, both in the months leading up to the US election and its aftermath.