Fed Continues to be a key driver for gold and dollar

Gold has been going strong since the mark of 2019. As we completed a quarter of the current year, gold continues to show the same sentiments as the second quarter began.  Gold prices rose to a more-than-one-week peak on Monday as the dollar slipped after data showed U.S. wage growth slowed last month, while investors awaited minutes of the U.S. Federal Reserve’s March meeting later this week.
Spot gold gained 0.4 percent to $1,296.87 per ounce by 0746 GMT, after touching its highest since March 29 at $1,297.86 earlier in the week.

Let’s have a look at each factor individually : 

Data - Soft data coming in from the US strengthened the yellow metal. Though the non-farm payrolls data was better than expected, the manufacturing jobs fell which is a bad signal for the sector and doesn’t show a very bright picture of the economic outlook. Marginally better Purchasing Managers’ Index (PMI) reading out of China over the weekend, along with the never-ending optimism about a trade deal, were touted as the reasons. Cyclical outperformed and the yield curve steepened, suggesting that recession fears sparked by the prior week’s inversion were overblown. A slightly better PMI in the US added to this better mood. Contrasting with the stronger soft data were weak retail sales in the US and evidence that inventory continues to build in the channel. Auto and home sales also remain fairly weak. Friday’s labor report was definitely good news and much better than last month. However, some of the leading data from that report, like temporary hiring, continued to soften and bear watching.

DOLLAR - The dollar was down 0.1 percent against key rivals as U.S. Treasury yields extended their decline after the U.S. jobs report signalled a slowdown in wage growth even as employment accelerated from a 17-month low in March. The dollar was also weighed down by softening bond yields. The greenback was 0.3 percent lower at 111.385 yen after briefly popping up to a three-week high of 111.825 on Friday following the U.S. jobs report.

CHINESE GOLD RESERVES - According to the latest Chinese reserve data, the country's gold reserves rose to 60.62 million ounces in March from 60.26 million a month earlier, according to data on its website. This was the fourth consecutive month of gold increases: last month’s inflow was 11.2 tons, following the addition of 9.95 tons in February, 11.8 tons in January and 9.95 tons in December. The recent buying spree resumed after a 25 month hiatus, as China stopped reporting gold purchases in October 2016. This trend broke in December, when Beijing announced it had once again started accumulating gold

RUSSIAN GOLD RESERVES -  The world's isn't sitting on its hands, as governments worldwide added a whopping 651.5 tons of bullion in 2018, the second-highest total on record, according to the World Gold Council, and nobody more so than Russia which quadrupled its reserves within the span of a decade amid President Vladimir Putin’s quest to break the country’s reliance on the U.S. dollar. The one country that has decided it will no longer be part of the USD monetary sphere of influence is Russia, which has been dumping dollars and buying gold at the fastest pace in decades.


Summing up the previous week and why gold rose or dollar fell, we can say - Disappointing European manufacturing data in combination with a more “dovish” Fed led the 10-year treasury yield to fall the most in two years and U.S. investment grade bonds to rise the most in four years. The Federal Reserve left interest rates unchanged, while signalling no rate hikes for the balance of 2019, acknowledging global uncertainty and muted inflation pressures. Markets responded favourably at first, with both bonds and equities rallying on the news, but the markets gave back these gains as the focus turned to what the Fed’s pause might mean about the underlying health of the economy. The Fed will likely continue to be a key driver of equity markets as officials negotiate the balance between rates, inflation and a healthy but slower-growing economy

Gold might take time to recover

Last week, the Fed had indicated that it will pursue a tighter monetary policy. This prompted the dollar to strengthen; and it’s after effect was seen on gold. Immediately gold prices dipped.

The Fed raised U.S. interest rates last week and said it planned four more increases by the end of 2019 and another in 2020, amid steady economic growth and a strong job market.
Spot gold was down 0.5 percent at $1,186.29, as of 0748 GMT. In the previous session, gold touched it’s lowest since Aug. 17 at $1,180.34 an ounce.

Since quite some time gold has been dancing to the tunes of the dollar. Prices have remained almost dependent on the dollar and the movement has been inverse. And dollar is further dependent on the US economy which has been showing positive developments and better than expected progress.  Efforts by the Trump administration to reduce the trade deficit from an economic point of view has been friendly for the greenback as well.

Gold has fallen about 13 percent from an April high, largely because of the stronger dollar, which has been boosted by a vibrant U.S. economy and fears of a global trade war. Investors have bought the greenback instead of gold as a safe investment.

The release of the final U.S. gross domestic product for the second quarter “put downward pressure on the yellow metal. Moreover, the pace of [economic] growth was confirmed as strong in the U.S. which validated the more hawkish views within the Federal Open Market Committee (FOMC).

Last Wednesday, the Fed on lifted federal-funds rates for the third time this year, to a range between 2% and 2.25%, and signaled it was prepared to increase again in December.

The spill over effect of previous and future hikes was seen on gold at the beginning of this week too. Gold prices lowered in Monday and remised in the negative zone.

There is still a lot of downward pressure for gold before it picks momentum. The widening of interest rate differentials, and the upward trends in U.S. economic performance are weighing on gold. At least in this quarter, fundamentally it is very difficult to long gold.

But as I have mentioned in my previous blogs, is that though gold has not lived up to its safe haven image, the central banks are still piling up its reserves.

Gold, known as a "safe haven," has come to be preferred by central banks as well as individual investors since the outbreak of the global financial crisis. Central banks in the first half of this year added 193.3 tons of gold to their reserves, the highest level since 2015. With 125.8 tons of gold, Turkey was named the second country achieving the highest increase in gold reserves since early 2017.

Russia, Turkey and Kazakhstan played an important role in the purchases in question. In the first half of the year, 86 percent of total gold purchases were made by these three countries.

Rank wise standing of countries in terms of purchase of gold made-
No1. In gold - Russia
No. 2- Turkey
No.3- Kazakhstan

The reason for these piling reserves of gold is to reduce its dependency on dollar reserves. What people have understood lately that US President Donald Trump’s attitude have been disturbing global financial markets. This could worsen further. In anticipation of avoiding future problems, central banks and other countries have started increasing their gold reserves; On the other hand, the rise in geopolitical risks in the Middle East was also instrumental in increasing the demand for gold.

Furthermore future events may lead to volatility, once again a favourable zone for gold

• Trade wars
• The risk of natural disasters and
• Geo political wars
All of these might have an impact on world economies and further on gold thus raising its demand as a safe haven asset.

Gold expected to rise moderately

While gold has primarily been stuck within the US$1,310 to $1,350 range this year, it managed to rise 3.61 percent during Q1 2018.

The yellow metal gained some first-hand experience in market volatility during the period, as inflation gave it boosts while US Federal Reserve interest rate hikes brought pressure down
On the other hand, United states willingness to resolve an escalating trade fight with China, pulled back gold prices from one week highs reached in the earlier trading sessions.

The United States voiced willingness on Wednesday to talk with China after Beijing retaliated against proposed U.S. tariffs on $50 billion in Chinese goods by targeting key American imports.
As investors pulled out of gold, Asian equities rebounded from two-month lows with investors hoping a full-blown trade war between the world’s two biggest economies can be averted.

Spot gold was down 0.3 percent at $1,329.11 per ounce by 0409 GMT, after touching a one-week high of $1,348.06 on Wednesday.

But what looked like an eased out situation, became a bit tense after economic numbers came in from U.S. Gold prices rose on Friday, as Wall Street stocks tumbled and the dollar fell as rhetoric from U.S. President Donald Trump and Chinese officials fed worries about a possible trade war, and after U.S. jobs data came in weaker than expected.

U.S. stocks fell, with the Dow down more than 450 points, after Trump on Thursday threatened to slap $100 billion more in tariffs on Chinese imports, and Beijing pledged a “fierce counter strike”.
Falling stock prices dragged the dollar against the yen and the euro. Also pressuring the U.S. currency was data showing the U.S. economy in March created the fewest jobs in six months, which might prompt the Federal Reserve to go more slowly on plans to raise interest rates.

An intense trade war between US and China kept gold exposed to fluctuations. And hence the market is paying very much attention to the dollar and bond market in terms of what the Fed is going to do.
While any escalation in geopolitical tensions will raise the demand for the yellow metal, we already see an increase in the demand from the Indian markets.  Though demand for gold in whole of Asia was muted, there is a slight pick-up in buying in India ahead of the wedding season and a key festival.

This month Indians will be celebrating the annual festival of Akshaya Tritiya, when buying gold is considered auspicious.

Moving back to global worries, gold in the near term is exacted to raise moderately – Reasons being

• A weakening US dollar: A tightening monetary policy in Euro zone will result in the US dollars downtrend. And changed in the US fiscal policy will also have negative effect on US dollar, thus proving to be positive for gold.  The US dollar’s downtrend will resume later in the year. “One key reason behind this is the impending tightening of monetary policy in the Euro zone, given that the euro accounts for nearly 60% of the dollar index,” the report states. It also mentions changes to US fiscal policy, which could have a ripple effect on the US dollar yield curve.
• Volatility in equity markets. - The markets are too optimistic and bullish for equities and this over confident attitude could backfire, resulting in spiking gold prices.

These not so extreme, but moderately influential factors might spike gold prices in the near term but not to a great extent.

Sentiment Shift In The Market

Past week, we saw investors moving away from gold as sentiments shifted to bearish. A strong US economy and a strengthening dollar led to this shift. Investors were confident that the U.S economy is relatively strong and this made the stock markets go wild. Moreover Gold failed to attract investors fleeing from the biggest selloff in six years in global equities as U.S. Treasury yields rose to four-year highs.

Last Thursday, bullion was headed for a 1 percent weekly decline as it fell to a one-month low of $1,306.81 over expectations of a rate hike soon in 2018.

Investor’s expectations of rate hike were driven high by the following factors-
• unexpectedly low U.S. unemployment figures
• Signals from the U.S. Federal Reserve,
• and other data showing the country’s economy


As we all know that higher interest rates make gold less attractive to investors as a safe haven because it does not pay interest. Instead this time, investors treated the dollar as a safe haven.

A stronger dollar makes dollar-denominated bullion more expensive for users of other currencies.

The global market selloff, sparked by last Friday’s jump in Treasury yields, and bets that the United States could see at least three interest rate hikes in 2018 due to improving U.S. fundamentals have propelled the U.S. dollar in recent days

Gold prices made little headway Friday, seemingly digesting losses suffered earlier in the week. But at the start of the week, yellow metal got a bit of a boost, thanks to a weaker US dollar.

Gold prices rose on Monday, 12th Feb, as the dollar slipped, but gains are expected to be capped ahead of inflation data from the United States this week that could mean U.S. interest rates increase more quickly than expected.

The dollar slipped against a basket of six major currencies as a bounce in equity markets ended a strong run for the greenback, used by investors as a safe place to park assets in times of financial market volatility.

Spot gold was up 0.4 percent at $1,321.16 an ounce at 0940 GMT. It has fallen more than 3 percent since hitting a 17-month peak at $1,366.07 in January. U.S. gold futures rose 0.6 percent to $1,323.20 an ounce.

Worries about inflation in the United States surfaced after data this month showed jobs growth surged and wages rose, bolstering expectations that the U.S. labour market would hit full employment this year.

But investors still feel that the dollar will strengthen once the infrastructure spending plan will be unveiled by President Donald Trump.

If the markets are amply convinced that the scheme will deliver a potent boost US economic growth and push inflation upward, that is likely to inspire bets on a steeper Fed rate hike cycle. This will probably revive the greenback’s recovery, tarnishing the appeal of anti-fiat assets epitomized by gold.

Whatever the reasons for the shift change in market sentiment, from macro factors to algorithmic trading, these abrupt index plunges and the rise in volatility have spooked investors across the globe and have led to panic selling and active profit-taking. With a low volatility environment less certain than before, market consensus on ever-increasing stock prices may be beginning to unravel.

September proves to be the worst month of 2017 for gold so far

September was an action-packed month, with North Korean rockets and a succession of monster hurricanes all coming at the markets almost at the same time. Not forgetting the comments coming out from the Federal Reserve that contributed to thefrenzy by giving a clear signal of a December rate hike. In the process, it perhaps single-handedly helped the dollar index recover from a three-year low hit earlier in the month.

Amid a resurgent dollar, the month of September proved to be worst for gold since November 2016. However, as geopolitical tensions soar, with the standoff between the U.S. and North Korea probably topping the list, demand for precious metals surged with Gold ETF holdings rising most since Feb 2017.

Last week, gold prices ended lower on Friday as weak U.S. consumer spending and inflation data did little to alter expectations for a third interest rate increase by the Federal Reserve this year.
The dollar has risen in recent weeks as investors grow more optimistic about the prospect for U.S. rate hikes and tax cuts that some expect to boost the U.S. economy.

Data on Friday showed that
• U.S. consumer spending barely rose in August.
• Inflation also remained sluggish with the core personal consumption expenditures price index rising 1.3% year-on-year, slowing from 1.4% in July.
• The core personal consumption expenditures price index is the Fed’s preferred inflation measure and has a 2% target.

The data did little to temper rate hike bets after Yellen indicated earlier in the week that the central bank was sticking to plans for a third rate hike this year and three in 2018.

The metal recorded its biggest monthly decline so far this year in September, despite netting a quarterly rise of nearly 3 percent partly due to geopolitical tensions including North Korea’s missile tests.

The U.S. currency recorded its best week of the year on Friday, despite benign inflation data for August, as expectations that the Fed would raise interest rates again in December loomed large after Fed Chair Janet Yellen said the central bank planned to stay on its current rate hike path.
Higher interest rates tend to boost the dollar and push bond yields up, weighing on greenback-denominated gold

The dollar’s rise paused on September 28 and 29, but was seen gaining momentum on Monday morning.

Gold slipped to its lowest in nearly seven weeks early on Monday, 2nd October as the U.S. dollar rose and equities gained, while growing expectations for a Federal Reserve interest rate hike in December also added to pressure.

Spot gold was down 0.3 percent at $1,274.90 an ounce by 0353 GMT, after earlier touching its lowest since mid-August at $1,273.55.

Gold prices fell in Asia on Monday as the dollar gained and the euro dropped as investors mulled the implications of the disputed referendum on Catalonia independence in Spain on the euro zone and a sentiment survey out of Japan in a thin trading day with China's markets shut for the week and holidays regionally expected to see thin flows.

Elsewhere,The Bank of Japan released its Tankan survey for the third quarter with investors focused on the large manufacturer’s index as it rose to 22, compared with an expected reading of 18.

This week, comments by Fed Chair Janet Yellen will be closely watched for further hints on the timing of the next rate hike along with Friday’s U.S. jobs report. Market watchers will be looking ahead to remarks by European Central Bank President Mario Draghi on Wednesday.

Gold, silver and platinum prices continue to correct and the stronger dollar and lull in tensions over North Korea, seem to be weighing on prices. We would let the corrections run their course, but the North Korean situation is likely to escalate again at some stage, so the next rally in gold prices may not be that far away.

Trump policy under trouble as Gold goes weaker against Dollar

Gold prices crawled higher on Monday on a weaker dollar and as uncertainty over US policy under President Donald Trump stoked safe-haven demand, although gains were curbed with many in Asia on holiday for the Lunar New Year, said Mr. Prithviraj Kothari, Managing Director of RiddiSiddhi Bullions Limited.

Spot gold had edged up 0.1 per cent to $1,191.98 per ounce by 0735 GMT, while US gold futures were up 0.24 per cent at $1,191.2.

Trump's administration on Sunday tempered a key element of his move to ban entry of refugees and people from seven Muslim-majority countries in the face of mounting criticism and protests in major American cities.

Some of Trump's statements and a lack of detail on policy have led some investors to opt for gold, often seen as an alternative investment in times of geopolitical and financial uncertainty.

The executive order signed by Trump has raised the uncertainty even higher.
The upturn in safe-haven buying comes at a time when physical demand has been sapped due to the Lunar New Year holiday in Asia, added Kothari.

The dollar index, which measures the greenback against a basket of currencies, was down 0.12 per cent at 100.410.

The market for the precious metal has also been buoyed by sluggish US economic data released on Friday.

Economic growth in the country slowed sharply in the fourth quarter as a plunge in shipments of soybeans weighed on exports, the data showed.

"That puts just enough doubt into the industry's mind about the timing of (US interest) rate hikes," Hynes said.

Meanwhile, holdings of the largest gold-backed exchange-traded-fund (ETF), New York's SPDR Gold Trust GLD, remained unchanged on Thursday from Wednesday.

Speculators crimped their net long position in gold futures and options, following two straight weeks of increases, data showed. They also raised their silver holdings to the highest since early November.

Spot silver was up 0.23 per cent at $17.16 per ounce.

Platinum shed 0.14 per cent to $980.75 per ounce, while palladium dropped 0.5 per cent to $732.4 per ounce. Palladium touched its lowest since Jan. 4 at $708.97 an ounce in the previous session.