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Showing posts with label European. Show all posts
Showing posts with label European. Show all posts

Monday, 3 December 2018

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.


Wednesday, 21 November 2018

Gold remains positive but lacks direction

Gold prices were modestly high last week reacting over a mixed bag of economic reports and geopolitical events. The yellow metal has been able to furnish gains over slightly weak US dollar.

GOLD PRICES rose against a falling US Dollar on Friday, halving last week's 1.9% drop to trade back above $1220 per ounce as Western stock markets fell and crude oil rallied from this month's 17% plunge so far.

Gold prices ended higher on Thursday, shaking off pressure from a stronger dollar to hold on to a week-to-date gain as U.S. and European equities declined.

Tumbling equities market, plunging oil prices, escalating worries about stresses in the global economy, ongoing trade tensions and uncertain growth projections have created a rally in gold prices. 



Let have look at these mixed bags -

BREXIT - The issues around Brexit have invigorated a little bit of safe-haven buying in the precious metals market. In the past week, U.K. Prime Minister Theresa May had two of her cabinet members resign Thursday, including her Brexit secretary, following May’s pronouncement Wednesday that she is sticking with her controversial Brexit plan. The British pound sunk on the news of the resignations, while European bond yields rose. Talks of a no confidence vote for May were also doing the rounds. This led to some safe haven buying in gold though it did not create that much an impact on the world marketplace.

DOLLAR - while the U.S. dollar remains the strongest and most consistent factor for gold, it’s likely that correlations with other asset classes will begin to strengthen and re-emerge over the next 6-12 months and thus reassert themselves in gold’s favour. Furthermore, the marketplace took note of U.S. Federal Reserve Chairman Jerome Powell’s comments at a speech late Wednesday that the Fed is closely monitoring the modest deceleration in world economic growth. However, Powell implied that situation is not now altering the Fed’s monetary policy tenor of continuing to slowly raise U.S. interest rates. Powell added that a further U.S. stock market selloff could impact the Fed’s policy decisions. Any further weakness in the dollar due to Feds decisions will pull gold prices high.

EURO ZONE CRISIS - Crisis and uncertainty continue to prevail in Europe, where Italy is locking horns with the EU and a Brexit deal hangs in the balance, mega-economy Germany has just produced the worst growth in nearly six years. Even if Wall Street can successfully shake off noise from the Old Country, a fresh threat from falling oil prices, along with worries over trade and a Fed misstep may cast long shadows

EQUITIES - Currently equities don’t belong to anyone and it appears to be in no-man’s-land. Gold and silver are seeing a bit of support as the U.S. stock indexes have backed down and might fall further. Any stronger stock market selling pressure surfacing in the near future would likely more significantly benefit gold and silver prices.

What we see from the above explanations is that the markets are now moving focus from dollar to geopolitical events.

But one notable interesting thing we see coming in is from China. China has developed tremendously in recent years. But what’s next? Is the country entering the growth recession? And how it will affect the world and the gold market?

Indeed, at the turn of this century, China was a minor player in this market. While today it is both the world’s largest consumer and producer of gold, accounting for 23% of total gold demand and 13% of total gold supply. However, there are still opportunities for further development, as the investor base is too narrow, while the market infrastructure and regulations need to improve.

So far, the Chinese authorities have postponed the inevitable slowdown. But it will arrive one day. Given the economy’s massive leverage, the growth recession is likely to cause a financial crisis, which would hit the whole world. Gold should shine, then. The problem is that nobody knows when it will happen.

While we remain positive on gold prices going toward and into 2019, gold still seems to lack clear price directionality for the time being.

Monday, 22 October 2018

Gold - once disowned ; now being adopted

After tentatively stabilizing in September, the gold price staged a $50/oz, rebound in early October, setting up the potential for a further short covering rally. 

Gold traded higher on Friday and is heading for the third straight weekly increase on the back of a rise of demand due to equity market volatility and a softer dollar. The market opened the day at 1229.70/1230.70. After the open, gold prices traded between a high level of 1230.46/1231.46

The gold in euro terms was trading at a three-month high near €1,070 per troy ounce. The conflict between Italy and the EU [European Union] over the Italian draft budget for 2019 is escalating.

The EU too seems to be taking a strong line against member states (Poland and Hungary are examples) which diverge politically from the consensus policies and rules. There is perhaps a fear here that the EU might break up if too many member states fall out with the EU hierarchy, which is probably why such a hard line is being taken on Brexit. A consensus deal is in both sides’ interests, but intransigence may well win the day, with adverse economic consequences for the U.K. and the EU as a whole.


Concerns that the euro-zone crisis could flare up again should support demand for gold as a safe haven.

Lately, US have been very aggressive in its trade policies and imposition of sanctions against countries like Russia and China. Indirectly the other counties that wish to trade with these sanctions hit economies will also suffer in the long run. They too will become victims of U.S. trade sanctions and imposed tariffs.

This is the main reason that countries like Russia and China have accelerated their gold reserves. Leading countries are trying to reduce dollar dependency, thus replacing it with gold.

The Russian central bank has announced yet another increase in its gold reserves in September – this time it has added a massive 1.2 million troy ounces (37.3 tonnes) to the gold in its Forex holdings. This brings the overall total to 65.5 million ounces (2,037.3 tonnes) and means it has added just short of 200 tonnes of gold to its reserves in the first 9 months of the current year which represents an increased acceleration in its reserve increases over the prior few years

The big European holders – Italy and France – in the global gold reserve table which respectively report holdings of 2,451.8 tonnes and 2,436 tonnes.

China on the other hand has been constantly increasing its reserves but not reporting to the IMF. It’s expected to be in the sixth place, but it could be higher given that the numbers are not reported to. The current trade war between the US and China has propelled China to reduce its dependence on dollar holdings in its reserves and perhaps use that money to buy more gold, but yes, without reporting it to the IMF.

Chinese officials and academics have intimated in the past that they would like to at least reduce the dollar’s dominant position in world trade and as a global reserve currency. It is already taking measures towards this by negotiating oil and other contracts in Yuan (convertible into gold if wanted) rather than in dollars, which is another reason why it may be building its gold reserves as well.
As we have mentioned before gold may be facing short term headwinds, but longer term prospects look to be ever increasingly positive.

The sentiment shift is still subtle, but it’s both real and widespread. After a few years of being ignored and/or dismissed as basically useless and almost being disowned by investors, gold is stable again, attracting positive press and increasing accumulation by big investors.

Monday, 12 March 2018

A turbulent week for gold

It was certainly a turbulent week for the yellow metal, as the combination of political uncertainty and U.S. rate hike expectations attracted both buyers and sellers. Though there was lot of volatility in the market, the precious metals continued to hold a well-defined range after turning sharply from key support last week and prices struggled to hold on to the early March gains.

On Friday, gold managed to pare some of its early losses to fresh weekly lows but held in negative territory through the mid-European session.



Gold prices extended losses into a third session on Friday as the dollar strengthened against the yen on hopes of easing tensions between the United States and North Korea and ahead of U.S. non-farm payroll data later in the day.

U.S. President Donald Trump said on Thursday he was prepared to meet North Korean leader Kim Jong Un for the first U.S.-North Korea summit, marking a potentially dramatic breakthrough in nuclear tensions with Pyongyang.

A combination of diverging factors has failed to provide any meaningful drive and has led to subdued/range-bound price action. The rampant watchful sentiment around European equity markets was seen lending some support to the precious metal's safe-haven appeal and helped bounce off lows.

However, a follow-through US Dollar buying interest, supported by a goodish pickup in the US Treasury bond yields might continue to keep a lid on any further meaningful up-move for dollar-denominated commodities - like gold.

Investors were glued to the keenly watched US monthly jobs report, which was expected to influence Fed rate hike expectations and eventually provide some fresh impetus for the non-yielding yellow metal's near-term trajectory.

Once data was released there was lot of upheaval in the market.

  • A strong jobs report on Friday offered some support to gold prices with U.S. Non-Farm Payrolls (NFP) topping expectations with a print of 313K for the month of February.
  • A strong read on labour force participation also highlighted underlying strength in the employment sector with a print of 63% (highest since September). 
  • Despite the job gains however, wage growth remained sluggish a downward revision to last month’s average hourly earnings accompanied by a miss in February at just 2.6% y/y (previously 2.8% y/y). 


The release is unlikely to alter the Federal Reserve’s expectations for three rate-hikes this year with gold finding solace into the close of the week.

Gold prices ended higher Friday, erasing their loss for the week, as monthly data revealed a strong rise in U.S. jobs, but disappointing growth in wages.

The U.S. dollar weakened in the wake of the employment data. Gold and the greenback often move inversely as a weaker dollar can raise the appeal for investors using other currencies to buy the precious metal.

The latest snapshot of the U.S. labour market showed strong job growth and a higher participation rate, with the nation adding 313,000 new jobs in February. But the 12-month increase in pay slipped to 2.6% from a revised 2.8% in January.

The jobs numbers initially sent gold lower, but also the wage growth data was not too robust at 2.6% and this has allowed traders to buy the dip and/or keep their long positions heading into the weekend.

Markets had braced for a stronger wages reading after an inflation scare within this report a month earlier helped sink stocks. Rising inflation could add pressure on the Fed to speed up its rate rises, which could strangle the stock market. Gold, in turn, although impacted negatively by higher interest rates, could attract hedging demand against too-hot inflation.

Overall, however, the jobs report kept the Federal Reserve on track with interest-rate hikes this year.
The U.S. dollar had tumbled to 16-month lows against the safe-haven yen late last week as fears of a trade war rattled markets after Trump announced his plan for imposing tariffs on imported steel and aluminium.  This being said, the markets seem to be bearish for gold at the present moment
   
One could make the argument that if nothing changed in the world, but simply the free market was able to determine the gold price, that it would be well north of $1900 per ounce. Now factor in what is going on in the world, just how fragile the dollar-based economic system is at this point, and the likelihood of more quantitative easing, and owning gold makes more sense than ever.