Gold gains acceptance

Gold has time and again proved its worth. This time gold took long to do so, but it has finally gained acceptance. Once again gold has proved that it is one of those investment assets, that is capable of reducing portfolio risk and boosting returns in times of uncertainty.

Currently, looking at the geo-political environment, the benefits of gold will stand out further mainly for 3 given reasons-

1. Other asset classes - gold has a low and sometimes negative correlation with other asset classes. For this reason alone, many institutional investors include a modest allocation to gold in their portfolio. Today, gold’s lack of correlation with conventional assets is particularly significant because markets are increasingly inter-connected and volatility is a persistent concern. Diversification into assets such as gold is widely accepted as a smart way to lessen risk.
2. Alternate currency- gold can act as an alternative currency. A prolonged period of monetary easing has caused a sharp increase in money supply and reduced the value of fiat currencies. Over the past decade, for example, the US dollar, euro and RMB have depreciated sharply against gold. The dollar and the euro have more or less halved in value against gold since June 2007, while the RMB has fallen by around a third. One of the main reasons of stock piling gold is that that central banks and main financial want to reduce dollar dependency and instead store gold as an alternate currency.
3. Zero Credit risk - gold has no credit risk. It does not compose an obligation of a government so it is not a liability. As such, ownership of allocated physical gold protects investors from credit risk, providing considerable comfort during times of crisis.

Now what lies in future for gold mainly depends on the strength of the dollar. Once the impact of the President Trump-initiated tariff wars, particularly those affecting Chinese imports, starts to impact U.S. domestic prices and margins, which they undoubtedly will, this could tip the U.S. economy into recession.  Should this happen equities markets would likely start to spiral downwards, the dollar’s strength would weaken again and this could all force the Fed’s hand.  It wouldn’t want to see the blame for any downturn movement in equity prices being attributed to its interest rate policy.  But that could be a reaction too late.  Past history seems to be littered with U.S. recessions following Fed tightening patterns.  Could we see this happening again?  If so the gold price, in U.S. dollars at least, could be a major beneficiary

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.

Appetite for gold Rises

Gold prices have rebounded 3% this month to $1,225-$1,230/oz as the confluence of asset market unwinds and escalating geopolitical risks have come roaring to the fore.

A combination of factors ranging from depressed equity markets, trade disputes, global growth fears and geopolitical tensions have brought gold back into the limelight.

The yellow metal found comfort near three-month highs on Tuesday as risk-averse investors sought safety in the metal amid market uncertainty.

Thursday was a momentous day for the precious metals sector with gold and other índices, and giant gold ETF all breaking out on impressive volume, and this development was all the more extraordinary because it happened when the broad stock market was crashing.

The IMF Global Financial Stability report, released on 10 October, highlighted an increase in the level of risk among multiple global metrics. Following its publication, stocks in the US, Europe and Asia lost 4%, 3% and 4% respectively over three days which created a rally in gold.

This is viewed as a strong sign that instead of being dragged lower still by a crashing stock market, the precious metals sector will soar.

The positive link between global economic expansion and gold has, historically, provided an important contribution to its long-term performance. But its role as a diversifier and tail-risk hedge has been fundamental too, and its price has been boosted as markets have faced systemic risks.

While there have been headwinds for gold over the past six months, complacency has crept into the market, questioning liquidity; market valuations are at extreme levels; debt has grown substantially globally, and increased tightening could hurt markets. All these factors, either individually or in combination, could be catalysts for a risk-off environment that could propel gold higher.

Portfolio Allocation Towards Gold Increases

Lately there was a lot of discussion going around on the following issues- is it the time to buy gold? Will gold gain its safe haven appeal? Will investors continue to favour gold?

Well past few days gold gave all these answers. Since last Thursday gold has been in a positive mood, rising constantly and showing the hangover effects in the current week too.

Gold gained as global stock markets suffered from broad declines on Thursday. Major U.S. stock indexes headed lower Thursday, as well, failing to recover from Wednesday’s plunge.

Gold prices edged higher on Wednesday as some investors sought refuge in the precious metal after the global stocks tumbled and the U.S. dollar weakened. Spot gold rose 0.4 percent to $1,194.12 per ounce during late trading hours.

Continuing with the same behavior in the current week, Gold rose more than 1 percent on Monday to its highest in about 2-1/2 months as investors sought refuge in the metal after mounting tensions between Western powers and Saudi Arabia compounded jitters in global stock markets.

Spot gold was up 1 percent at $1,230.05 per ounce later in the day; having touched it’s highest since July 26 at $1,233.26.

There were varied reasons responsible behind gold gaining its glitter. Namely- 

Global Equities - Stocks on major world markets fell to a three-month low, with the benchmark S&P 500 stock index falling more than 3 percent, in its biggest one-day fall since February.  This created panic amongst investors.

Global stocks were under pressure, with European shares hitting 22-month lows on the back of a raft of factors including a U.S.-China trade dispute, rising tensions between Saudi Arabia and western powers, stalled Brexit negotiations and concerns over an economic slowdown in China.

Global Risks - the International Monetary Fund said last week that risks to the global financial system, which have risen over the past six months, could increase sharply if pressures in emerging markets escalate or global trade relations worsen.

Dollar - The U.S. dollar index retreated from a seven-week peak hit in the previous session. The dollar, a key driver for the precious metals, weakened against its currency rivals. Another haven market, however, U.S. Treasury bonds — chief among culprits influencing rickety stock trading of late — drew their own fresh demand Thursday, halting for now the rise in yields that spooked stock investors.

U.S. Stocks - Gold prices surged Thursday to the highest in more than two months, with the metal’s haven status in full force and attracting investment interest amid a sharp retreat for U.S. stocks that has infected foreign indexes

China's gold reserves - the markets were awaiting these figures post the Golden week holiday. Once the numbers were out, the market didn’t wait much to react. The official gold reserves in mainland China have grown from 1,054 tonnes in the first quarter of 2015 to 1,839 tonnes in the third quarter of 2016, to 1,843 tonnes in the second quarter of 2018. The demand for gold among Chinese consumers also rose by 5 per cent in the second quarter from a year ago to 144.9 tonnes. Demand by Indian consumers declined in the same period by 8 per cent to 147.9 tonnes.

The market for gold bars and coins has also been boosted by China and Iran, as they seek to hedge against geopolitical tensions with the United States.

We all know that the rate hike has strengthened the dollar against major basket of currencies. This fall in other currencies against the dollar has had an adverse effect on some of the Administration’s tariff impositions.  Some U.S. manufacturers are already warning that the tariffs on Chinese goods in particular will have an adverse impact on input and consumer prices. If equities are seen as likely to fall further this could see an increased move towards safe haven assets like gold and silver.

We don’t know how far gold will stay or stabilize here, but for the time being gold has definitely given us investment goals. And with the markets gold down, people have increased their allocation towards gold.

Drivers for Gold

The past few trading days have seen the gold price hovering above and below the $1,200 mark in the light of a stronger dollar and a lack of Chinese data due to the nation’s Golden Week holiday this week.  Every time the gold price has nosed above $1,200 it has been taken down a few dollars again.
There were important key events that occurred during the week.

Let’s have a look at all that has been affecting gold - 

US Economic Data - Data on Wednesday showed that U.S. service sector activity accelerated to a 21-year high in September and another report showed that private sector hiring increased at the fastest pace in seven months in September.

US Dollar - Gold prices inched down on Thursday as the dollar strengthened on positive U.S. economic data. Rising U.S. Treasury yields were also cited as headwind for the precious metal.
The dollar hit an 11-month high against the yen and stood tall against other its peers on Thursday, boosted by a spike in Treasury yields following upbeat U.S. data and comments from Federal Reserve Chairman Jerome Powell that were seen as hawkish.

Rupee at an all time low - Rupee was at an all time low of 73.34 on Wednesday, which further spikes gold prices in spite of a global down fall. Increased buying by the world’s second-biggest gold consumer would support global prices that have traded near $1,200 an ounce since late August, but also widen India’s trade deficit and add to pressure on the Indian rupee.  Rupee is consistently falling and we don’t know how much it will fall further. It is prompting investors to hedge their risk with exposure to gold.

Domestic gold prices - Gold prices crossed the Rs 32,000 per 10-gram mark on Wednesday at the bullion market as fresh buying by local jewellers ahead of the festive season pushed up prices. Positive global cues also supported the price move. Prices of the yellow metal surged by Rs 555 to reach Rs 32,030 per 10 gram.

Demand for gold - Traders in India,  said that they are building up inventory ahead of Diwali and Dhanteras next month. Also, globally sentiments for gold improved after US and Canada reached an agreement to salvage a North American free trade deal. India’s gold imports may rise in the fourth quarter as investors seek alternatives to faltering equity markets and a plunging rupee. Traditional buying will also rise during the festival season, said several sources involved in the market.

Meanwhile we expect the gold price to continue hovering around the $1,200 mark, give or take a few dollars.  There does seem to be an appetite to take it higher, but every time it does so it seems to be knocked back.

What will probably drive gold in the following few months -
• Positive or negative U.S economic data
• Any news on Chinese gold demand which will surface once the Chinese Golden Week holiday ends
• Euro zone trials
• Italian Debt Situation
• Brexit negotiations
Keeping the above events in mind, a mixed bags of reactions is expected from the markets for gold.

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.

Investors continue to favour gold

I have been talking in a few of my previous blogs about the right time to buy gold. Should we jump into the wagon or should we wait. Every time the market feels that now we should consider gold, each time gold has been failing at proving its worth.

This week too gold showed some similar trends. The Fed on Wednesday 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

On Thursday, gold fell back below $1,190 to a six-week low. The precious metal is now on track for its sixth straight month of losses, its longest losing streak since 1989.

Spot gold has been a path to ruins on the back of the dollar's spike on market optimism over the impressive run of economic performances in the US economy, streaks ahead of its 'competitors' and the latest Durable Goods and in line GDP data gave the dollar a boost.

The release of the final U.S. gross domestic product for the second quarter “put downward pressure on the yellow metal. The pace at which the U.S economy is growing has been tagged as strong and was further validated by the comments coming in from the Federal Open Market Committee (FOMC).

The Fed balanced their hawkish statement by mentioning that the committee is a little less optimistic about the long-term future outlook and this part alone was enough to keep the dollar index in check and this was the reason that though gold slipped, the down fall wasn’t as severe as expected.

The reason why people are still favouring gold is that it hasn’t dropped that far. There are buyers for gold at $1180 also, because the bears have not moved underneath $1,150.

But does that mean a gold price rise is coming soon? Overall market watchers attending the show seem to agree that while an increase is coming it won’t necessarily be in the near term.

The time for Gold should come soon

Gold prices gained on Friday and were at weekly record gains, while the dollar also traded higher although it is still hovering near two-month lows.

The dollar fell to a nine-week low against a basket of major currencies on Thursday as investors shifted their focus from a trade row between China and the United States to the Federal Reserve’s monetary tightening plans.

Currency markets have become more settled since reacting strongly to new tariffs announced by Washington and Beijing on Tuesday.

The fall in dollar this week came as safe-haven demand for the U.S. currency ebbed amid continued relief that fresh U.S. and Chinese tariffs on reciprocal imports were less harsh than originally feared.

On Monday, the U.S. slapped tariffs of 10% on $200 billion in Chinese goods, before they rise to 25% by the end of 2018, rather than an outright 25%.
China retaliated by putting tariffs on $60 billion in U.S. goods. However, China will put a 10% tariff on some goods it had previously earmarked for a 20% levy.

Reports of the tariffs imposed by the U.S. and China on each other's goods being set at lower levels than expected were cited as headwind for the dollar prices, which is widely seen as safe-haven assets.
The dollar was also under pressure after a report said that the U.S. and Canada are unlikely to reach an agreement on NAFTA this week.

While trade disputes gained momentum, there was one more thing that has kept the markets on its toes. The next Fed meeting. Investors looked ahead to the next Federal Reserve policy decision to be announced on Sept. 26.

U.S. economic data has remained strong, and the dollar has tended to act as a safe-haven trade, gaining as tensions between Washington and Beijing escalate.

Markets currently expect the Fed to hike rates by a quarter of a point, while fed fund futures price in an additional increase at the end of the year at more than an 80% probability.

Looking ahead, markets would be paying close attention to next week’s Federal Reserve meeting. The U.S. central bank is widely expected to hike rates and discuss paths for future rate hikes. Higher rates dent demand for non-interest yielding gold and in turn boost the dollar in which it is priced.

The Federal Reserve is next week expected to raise benchmark borrowing costs and shed more light on its future rate path.

One more noteworthy thing that happened over the week was gold buying by Russian central bank.  As mentioned in my blogs earlier, the Russian central bank has been piling up its reserves and the latest figures released , stated that it has added a further 1 million ounces of gold (31.1 tonnes) to its reserves that month bringing the grand total to just over 2,000 tonnes as we suggested a month ago. It now has the holdings of Italy (2,451.8 tonnes) and France (2,436.0 tonnes in its sights to become the third largest national gold holder after the USA (8,133.5 tonnes) and Germany (3,369.9 tonnes) – all figures as reported to the IMF.

Russia and China are both believed to by buying gold as they feel the yellow metal will have an important role to play in the ongoing development of the global financial system. Russia and perhaps China too, are also believed to be buying gold, amongst other moves, to reduce their dollar-related forex holdings.

All these considerations suggest one thing- . Gold should shine not only due to the lower real interest rates and as an inflation-hedge, but also as a safe-haven asset hedging against the potential overshooting by the Fed.  We don’t expect any major financial crisis or that there won’t be a rate hike—what we think keeping these considerations in mind- the time for gold should come soon.

Is It Time To Go For Gold

Gold prices have tumbled in 2018, dropping, despite fears of a global trade war and turmoil in emerging-market economies. Such issues are risks that the market has mostly shrugged off, but the precious metal could be well positioned to provide some safety in the event those factors escalate and start to have a bigger impact on equities.

Gold is historically an asset class that does well during turbulent financial markets. As a safe-haven, the precious metal attracts risk-averse investors during such times. But when markets are doing fine, gold moves in a range, giving no gain for long periods of time.

But now many investors are rethinking on these lines and are shifting their focus on the yellow metal. Though gold has declined in the current year, lately it has shown dome positive developments.

Past week too gold was lying low till Thursday but gained momentum the following day. Gold prices slid on Thursday as investors purchased riskier assets instead of seeking a safe haven in gold, amid hopes for a new round of U.S.-China trade talks. Spot gold declined 0.3 percent to $1,202.30 per ounce during Thursdays trading hours, after earlier hitting its highest level since Aug. 28 at $1,212.49.

But after the economic numbers came in from U.S., gold prices gained rally.

Gold rose on Friday as the dollar faltered after softer-than-expected U.S. inflation data dimmed the case for a faster pace of policy tightening by the U.S. Federal Reserve, amid signs of movement in the Sino-U.S. trade standoff.  Spot gold was up 0.5 percent at $1,206.10 an ounce thus gaining 0.9 percent for the week. The main reason for this positive developments were-

• U.S. consumer prices rose less than expected in August
• Underlying inflation pressures also appeared to be slowing,
• Suggesting the Federal Reserve’s pace of rate hikes could slow.
• The data falling short of expectations, investors are thinking that the Fed may not go for a rate hike in December
• The dollar’s index against a basket of six major currencies was a shade lower at 94.442 after slipping to a session low of 94.427, a bottom since July 31.
• The months-long trade rift between Washington and Beijing has prompted investors to buy the U.S. dollar in the belief that the United States has less to lose from the dispute.

Now the current upward trend is propelling investors to once again make place for gold in their portfolio as it can be used tactically as a potential hedge for a stock market correction and/or a reversal in the dollar and real interest rates.  A reasonable 3 to 5 per cent of the portfolio can surely be allocated to gold.

It’s not only the investors, but leading banks and financial institutions that have also been adding up their gold reserves. Starting in 2008, central banks have been continuously adding gold to their reserves, though gradually and in relatively small amounts. In 2008 and 2009, such institutions added 580,000 and 210,000 ounces of the yellow metal (source- CPM data) and since then the reserves have been piling up, with around 11 million ounces getting purchased in 2017 and similar trend are expected this year too.

Russia too has been diversifying its monetary reserves. Most central banks are diversifying away from the dollar.

What’s even more interesting is that the RBI has bought 8.46 tonnes of gold in the financial year 2017-18. This was its very first purchase in almost nine pears. The last time RBI purchased gold was in Never 2009 when it has bought 200 tonne of yellow metal from the IMF.

Now currently domestic investors are thinking as to what to do with gold that has not given many gains in the last five years. Well the market experts believe that investors will be guided by expectations about where the Indian financial markets are headed and may give more though to gold in the coming months.

Though gold has not moved much over the past five years, some are still confused with the thought that with the current global trade wars and currencies dropping against the dollar is it time to go for gold?

Time To Add Gold In Your Portfolio

Gold has fallen more than 8% this year as concern about trade disputes; currency weakness in emerging markets and rising US interest rates has strengthened the dollar, making bullion more expensive for buyers with other currencies.

TRADE DISPUTE - Gold is trading back above $1,200/oz ahead of the expected announcement from the White House that China is about to get hit by additional tariffs on goods valued at up to $200 billion. The latest US trade balance for July showed the US in the red by $50.1 billion while the trade deficit with China rose to a fresh record of $36.8 billion.

Investors have been waiting for a fresh round to be fired in the Sino-U.S. trade war after a public comment period for proposed U.S. tariffs on a list of $200 billion worth of Chinese imports, which includes some consumer products, ended late last week.

With his domestic agenda being challenged by the upcoming midterm elections, less-than-flattering comments from White House insiders, and the ongoing Mueller investigation, President Trump is unlikely to step back from his fight with the Chinese.

The prospect of an escalated trade war continues to make matters worse for emerging market bonds, stocks and currencies.

The trade war and its effect on the USD/CNY exchange rate remains the primary determinant of Gold prices in dollar terms. Until either the trade war ends or the dollar falls, either of its own accord or due to a Fed reversal in policy, USD/CNY is likely to go higher and gold lower.

The escalating trade war crisis continued to spill its effect on gold in the past week too. Gold prices rose on Friday due to a lower dollar and jitters about an escalation in the U.S.-China trade dispute after fresh threats by President Donald Trump, although bullion is still heading for its fifth straight monthly decline.

Spot gold was up 0.6 percent at $1,206.19 an ounce during Fridays trading hours- a gain of 4 percent from the 19-month low of $1,159.96 hit on Aug. 16.



CURRENCY WEAKNESS - Lately positive U.S. economic numbers have been showing signs of a strengthening U.S economy. This has further strengthened the dollar against major basket of currencies. In India too rupee was at a record low of 72.17, sliding by 44 paise against the US dollar on rising demand from US dollars by bankers and importers.

Like the trade war, the dollar prices continued to show its effect on gold this week too.
The dollar traded higher against a basket of currencies on Monday amid fears of a potentially major escalation in the China-U.S. trade conflict, while Sweden's crown rose following the previous day's election.

U.S. President Donald Trump warned on Friday that he was ready to slap tariffs on virtually all Chinese imports into the United States, threatening duties on another $267 billion of goods in addition to the $200 billion already facing the risk of duties.

The index also found support after data showed U.S. jobs growth accelerated in August and wages notched their largest annual increase in more than nine years, boosting the prospect of faster interest rate rises by the Federal Reserve.

Non-Farm payrolls led to some modest downward pressure on gold. Furthermore, though the dollar will continue to weigh on gold, and as long as the dollar is strong, gold will remain constrained.

RISING INTEREST RATES - Gold prices held steady during Asian trade on Tuesday as investors remained on the sidelines amid expectations of a U.S. interest rate hike this month and on fears of an escalation in the Sino-U.S. trade war.

Strong U.S. payrolls data last week cemented expectations that the U.S. Federal Reserve will raise interest rates in September, in what would be its third hike this year, with expectations of one rise more in December.

Higher rates increase bond yields, making the non-yielding bullion less attractive and tend to boost the dollar.

Now what’s interesting to note is that though gold is being hammered lately, financial advisors in Asia, are suggesting their clients that this is the right time to include gold in their portfolio. They have been asking them to take advantage of dips and to stockpile to protect assets against pounding equity markets.

Gold has sold off over the past few months as USD interest rates have increased, so there is more opportunity to buy. For clients who do not have an allocation of gold in their portfolios, now is the time to add gold.

Gold might increase but with a lag

The yellow metal is down about 8 percent this year amid rising U.S. interest rates, trade disputes and the Turkish currency crisis, with investors parking their money in the dollar, which is being viewed as a safe-haven asset.

Firm U.S. dollar makes gold more expensive for holders of other currencies, with safe-haven demand for gold this year overshadowed by the metal’s relationship with the greenback
Gold's weakness in the international market is primarily on account of the US Federal Reserve's hawkish stance. It has hinted at four rate hikes this year and more next year. The US Fed is also shrinking its balance sheet.

On one hand the US Fed is raising rates and on the other hand central banks are doing completely opposite. This action is strengthening the dollar and hitting on gold.
An increase in rates is expected soon because the Fed believes that the US economy is strong enough to support a hike. This belief has led to an increased pressure on gold.

Following this sentiment, Gold prices edged down on Tuesday as the dollar hit a more-than-one-week high on the back of intensifying global trade tensions and economic worries in emerging markets.
Spot gold was down 0.3 percent at $1,196.90 an ounce during Tuesdays trading hours.

Many currencies world over have suffered setbacks against a strengthening dollar.

The dollar index, which measures the greenback against a basket of currencies, hit its highest since Aug. 24 at 95.410.

Now what will hold great importance for the dollar and the gold is the US economic data. Markets are closely watching the economic number, including a manufacturing survey on Tuesday and an employment report on Friday, which could influence gold’s moves this week as investors look for clues on the pace of U.S. interest rate increases.

Meanwhile, worries over an escalation in trade conflicts between the United States and other countries have kept participants in broader markets on the edge.

The threat of trade wars has only impacted currencies as of now. Analysts are expecting gold prices to start rising with a lag.

Currently we have been witnessing global economic crisis. This is making the other currencies weak and benefiting the dollar and time and again we have seen that any rise in dollar pulls down gold prices.

But if we see the domestic market, the gold dollar relationship is behaving in a very interesting manner.

Dollar and gold have an inverse relation so when the dollar strengthens, gold prices fall.

But when the dollar strengthens the rupee weakens, and a falling rupee offsets the fall in gold prices in India. So, while the price of gold may fall 7% in dollar terms, it may drop only 5% in rupee terms.
Any economic or political crisis results in an upsurge in gold prices and similar behavior as expected over the trade crisis between US and China. But it seems that gold’s rally has been totally offset by a strengthening dollar.

Analysts believe that gold could revive if the ongoing trade dispute between the US and China flares up into a full-fledged trade war. If the US economy suffers, gold would benefit from this.
Given the risks that exist today in the global economy, gold can prove to be a useful portfolio diversification tool and can help reduce overall portfolio risk.

Global inflation, rising interest rates, tightening of monetary policies by central banks, high crude prices are all positives for gold. 

Political Turmoil Expected to influence Gold

Gold turned negative on Tuesday as U.S. Treasuries rose after the United States and Mexico struck a trade deal, with analysts saying ongoing U.S.-China tensions would continue to weigh. Spot gold lost 0.4 percent to $1,206.39 per ounce during Tuesdays trading hours.

Following suit, Gold price fell on Thursday and is set to record a fifth monthly fall on expectations of a higher interest rate, while the dollar also edged lower.  Powell’s speech came after U.S. President Donald Trump said earlier this month that he was “not thrilled” about the Fed’s decision to hike rates. A potential hike in interest rates in general decreases demand for gold, which yields no interests.

Meanwhile, the U.S. reported on Wednesday the strongest growth of its second-quarter GDP in a decade, expanding at an annual rate of 4.2%.

Markets widely expect the Federal Reserve to hike interest rates in September and December following last week’s Jackson Hole symposium, where Fed’s chairman Jerome Powell defended policy of interest rate hikes, adding that he expected a low but gradual growth of interest rates as inflation is reaching the country’s 2% target.

On the other hand, metals investors are wondering if political turmoil could bring in volatility several for gold and silver prices.

Furthermore, what gained focus over the week were the recent prosecutions of prominent Trump campaign figures that now have Democrats giddy over the possibility of being handed grounds for impeachment. The chances for impeachment did get a boost, although it would seem to hinge primarily on whether the Republicans lose the House and Senate in November. It’s a very daunting political task. Only two presidents have ever been impeached – Andrew Johnson and Bill Clinton. Neither were convicted in the Senate and removed from office, however. That can only be done with a ⅔ majority vote.

If the threat of impeachment somehow becomes more credible based on the revelation of more serious crimes, then all bets are off. It will move markets. But, for now at least, it remains a long shot.

Major political turmoil is just one of many reasons to buy insurance in the form of gold and silver bullion. Investors can add upheaval in Washington to a longer list, which, at the moment, also includes:

• Precious metals looking oversold.
• Extremely bullish relative positioning of banks versus speculators in the Commitment of Traders data.

Time to Divert Our Attention Outside America

The precious metal is down 8% so far in 2018, and nearly 14% on an annualized basis - making it the worst-performing major asset class this year.

Gold has weakened this year alongside many emerging-market currencies because the dollar strengthened and US interest rates became more attractive. On August 13, gold fell below the key technical level of $1,200 an ounce for the first time since early 2017. It traded up 0.7% to $1,202.90 an ounce on Friday.

It may have gained by the end of the week, but it’s still a weak asset currently.  Spot gold was up one percent at $1,196.39 an ounce during Friday’s trading session, about 3 percent higher than last week’s 2018 low below $1,160.00.

Growing U.S. political uncertainty, reinforced by the legal woes of two of U.S. President Donald Trump’s former advisers this week, is keeping the dollar under pressure despite tighter U.S. monetary policy, analysts say.

By Friday, 27th August, gold prices saw a rally as investors took Powell’s speech as a more dovish stance, which seemed to rule out the need for a more aggressive tightening as he suggested a lack of inflationary pressure and put the warning for further gradual increases in interest rates on a continuation of current economic strength and a strong labor market.

In his speech, Powell indicated that there was no clear sign of an acceleration above the Fed’s 2% inflation objective and said there did not seem to be an elevated risk of the economy overheating.

Gold prices traded higher on Friday as Federal Reserve chairman Jerome Powell emphasized the central bank’s plans for gradual interest rate hikes would be conditioned on the continued strength of the U.S. economy and labor market.

Higher interest rates tend to weigh on demand for gold, which doesn’t bear interest, in favour of yield-bearing investments. The remarks also weighed on the dollar, extending the greenback’s losses and increasing the demand of the precious metal for holders of foreign currencies.
As the most recent FOMC statement indicates, if the strong growth in income and jobs continues, further gradual increases in the target range for the federal funds rate will likely be appropriate.

Gold is usually favoured as a safe haven during market turmoil, but even all the back and forth on trade between the US and China has not stirred up a bid for the metal as the dollar still hold strong.
The commodities market has been adversely impacted by the strong dollar and the discussion of a trade war possibility, which may already be happening. With the economies of America, Europe and Asia picking up, most investors are asking, why buy gold or silver? The dollar is the key. When it starts dropping, we will see the price of gold, silver and all commodities improve.

Many foreign governments and companies have borrowed in dollars, thinking the dollar will go lower relative to their own currencies. But the dollar has done the complete opposite. So now, these borrowers of $US are being squeezed as their borrowing costs have risen dramatically. This is creating financial distress in certain corners of the world. At these locations the price of gold will be seen climbing quickly.

But when will this happen? Will the dollar weaken? When will we see the gold prices going up? Will global uncertainties rise? There are many questions floating in the market currently.
And hence we all need to divert our attention to some of the developing problems that exist outside America and how it will impact America and furthermore the dollar.

Winds of change for Gold

Though gold has not performed as per expectations, we saw it glittering once again by the end of the previous week.

Friday saw the gold price pick up significantly to end at over $1,180 after spending much of the period in the low $1,170s, but the rise was almost all due to a turnaround in the U.S. dollar index which slipped back a little.

Dollar was going weak in the first quarter of 2018.This led to a rise in gold prices which reached above $1350 in April. There were positive sentiments for the yellow metal and traders expected it to cross $1400. 

But from mid April, with the rhetoric around the Trump trade tariff impositions taking centre stage, it all turned around. The dollar started to strengthen and the gold price, along with most other metal and mineral commodities priced in U.S. dollars, began to slip accordingly. As the tariff impositions moved from conjecture (many thought President Trump might be bluffing) to reality and counter measures were threatened and put in place by affected nations, the dollar started to rise and has not really looked back apart from the odd stutter since.

The same sentiment was witnessed in the past week. On 13 August 2018, the price of gold fell below 1.200 USD/oz, declining to a 1.5 year low. There are many factors that have triggered this down fall.
Even thought gold jumped up on Friday, the yellow metal is around $170 down on its peak earlier in the year. That’s over 9% down on the year to date and over 12% down from its peak.


Let’s have a look at the key influential factors-

Demand for US Dollar - Given recent market uncertainty – amongst other things due to the Turkish Lira crisis and other emerging market currencies being affected by the turmoil – investors have substantially increased their demand for the Greenback. It does not only serve as a "safe haven" currency, but it also offers a positive interest rate (e.g. 2-year US bills offering a yield of around 2.6 per cent). In the international context, this is a rather attractive combination from an investor's point of view. What follows is an appreciating US dollar and – as its flipside – a decline in the price of gold in US dollar terms.

Fed Rate Hike - the Fed's hiking cycle might be closer than the market expects. The reason lies in the growing international US dollar indebtedness. In the period of extreme low US interest rates, many foreign borrowers – in particular, those from emerging market economies – have taken on US dollar denominated debt. An appreciating US dollar causes them quite some trouble: It increases the costs of serving their debt. What is more, it makes rolling-over maturing US dollar debt more difficult: Lenders become hesitant to renew loans, and if they do, they can be expected to charge higher interest rates

Dependence on U.S Economy - Due to the high dependence of many economies around the globe on the US dollar, the Fed can no longer gear its monetary policy to the needs of the US economy alone. It can no longer ignore the consequences its monetary policy is most likely to have on other economies around the world. While the US economy may well need higher interest rates, many countries will have significant problems coping with US borrowing costs going up. As soon as the financial markets find out that the Fed cannot continue its US economy-centred monetary policy, there is a decent chance that the reserve currency status of the US dollar will be critically reviewed. So there is quite a possibility that the currently unshakable belief in the Greenback's safe-haven status will lose some of its shine.

But we can surely say one thing - The wind of change is definitely in the air for gold prices
After the Labor Day holiday in the U.S. in the first week in September things could start to change though as perhaps some of the trade war rhetoric will cool, China will come back to the negotiating table and the dollar index may ease giving gold some welcome respite.

Physical demand is coming back, which is a great sign for prices in the second half of the year.  Lower gold prices are starting to stimulate better physical demand, particularly from India. This might lead to rally in gold prices in the near future.

Gold being pulled between bulls and bears

Lately, gold has shown a typically consistent price pattern. It has witnessed a lot of pull and push in the trade range. It generally starts on a negative note, recovers and is pulled down again. So it’s a wave like movement, which leaves the markets perplexed over its behavior.

It’s difficult for market players to project or analyse the markets for gold- whether it’s bullish or bearish. This has been going on for quite some days now. As gold moves up and the market expects it to cross the key levels. Something contradictory happens and the yellow metal starts trading negative again.

The classic example of this would be the recent Federal Open Market Committee meeting on July 31/August 1.

 The U.S. Fed chair Jerome Powell’s statement on the U.S. economy and likely Fed interest rate policy for the remainder of the year strengthened the dollar and pushed gold’s trading range back around $20.

When the data released was not par expectations, gold did manage to trade high, but then was pulled down over rate hike expectations.

So right now the market is divided in to groups. This that want the yellow metal to fall below $1200 and those that would like gold to strengthen and cross $1400. So there is a kinda tug of war between the $1200- $1400 trade range.

In the short, probably in the coming month gold looks negative. It might be down. But is soon expected to gain momentum as we the onset of the festive season in India which will mark a rise in demand for gold. Apart from this, equities look weak and markets might shift to gold as an alternative investment.

One more important thing that will contribute to these rising prices is bitcoins. After the much hype surrounding this investment option, it’s not being welcomes by the parties that are suspicious about its future.

Coming to our main point of discussion, Will gold stick to the bears market or is it expected to enter the bulls. Well it depends on the following factors-

• Markets returning to trade after U.S. Labor Day Holiday
• Dollar
• Chinese import tariffs laid by the U.S and reaction/actions of the Chinese government
• U.S inflation
• Fed policies
• ECB
• Russia’s market volatility

Gold, too, has historically had a role as a haven asset in times of global market turbulence. Now, Financial markets continue to watch for any evidence that might knock the Fed off its projected path to raise interest rates twice more this year and three times next year. Apart from that any global uncertainty is expected will be welcomed by the bull supporters for gold. Markets also await the onset of the festive season in India, which will see a rise in the demand for the yellow and thus push up gold prices further. So currently along with the US economy happenings, a lot of global factors will also play a key role in influencing gold prices. Any sudden event can boost the yellow metal high towards the end of 2018.

Gold expected to end the year on a positive note

Spot gold, which is down over 6 per cent this year, is close to a one-year low of $1,211.08 touched on July 19 as the dollar powered to a one-year high on expectations of higher US interest rates this year.

Gold's appeal has been fading this year with prices sliding near to the key US$1,200 level, partly because of an upbeat outlook on the US economy that's strengthened the dollar.

Gold prices were higher on Friday, after disappointing jobs data pushed the U.S. dollar lower but still remained near two-week lows. A stronger dollar and rising interest rates have weighed on gold in recent months.

Gold prices are seeing just modest gains in the aftermath of a U.S. non-farm jobs number that did not meet market expectations.

The U.S. employment report for July showed –
• A significantly lower-than-expected non-farm payrolls rise of 157,000 jobs. The number was forecast at up 190,000, but after
• Wednesday’s ADP national employment report for July that showed a rise of 219,000, many were looking for a non-farm jobs number north of 200,000.

Markets believe that U.S economy is on its path of gradual progress and hence they didn’t react much to these numbers. One more reason for less volatility could be the vacation season in U.S and Europe that continue to keep the, markets calm until U.S. Labour Day holiday.

Even though these numbers were below expectations, it did strengthen the Federal Reserve action to gradually increase interest rates.

The Fed left interest rates unchanged on Wednesday, as expected, but pointed to the potential for increased rate hikes due to strong U.S. economic data.

Higher rates are a negative for gold as the precious metal, which does not pay interest, struggles to compete with yield-bearing assets when rates rise.

Furthermore, the metal saw some relief on Friday as U.S. hiring cooled in July and China moved to support its currency.

But markets are now positive towards gold. Many analysts believe that we are already at the bottom of this cycle for gold, and they believe that gold prices will pull up from here in the next 6 months.
Reasons being-

Trade War- the US and China imposed import tariffs on each other, fraying nerves on financial markets. A further escalation in the trade war crisis will definitely push up gold prices.

Demand- After a slow season in Mat, gold is all set to run higher during the coming 6 months over rise in its demand.

The above chart shows what happened towards the end of each of the past five years, as Chinese and Indians loaded up on gold for Spring/Summer wedding gifts and as savings for post-harvest cash. There’s no reason to expect them behave differently next time around.

Dollar dependency-  the analyst are convinced that gold will continue to grow in value relative to currencies, particularly as more states seek to rid themselves of their dollar holdings.

Gold Holdings- According to the latest estimates, Russia and China are in 5th and 6th place in total gold holdings, respectively.  The US is estimated to have over 8,100 tons of gold. Germany, which recently repatriated its gold from the US, is in second place, with 3,371 tons; Italy is in third with 2,452 tons, and France in fourth with 2,436 tons. Moscow's historical record in total gold reserves was reached in 1941, when the USSR stockpiled some 2,800 tons of gold just before the start of the Second World War.

Looking at the above mentioned events, we think that gold is expected to bounce back from its year lows and wil head positive towards the year end.

3 types of rates influencing gold

Gold lost its luster this week, as it touched to one year lows. Spot gold, which is down over 6 percent this year, is close to a one-year low of $1,211.08 touched on July 19 as the dollar powered to a one-year high on expectations of higher U.S interest rates this year.

Gold prices dropped as trade tensions between the U.S. and China resurfaced a day after the Federal Reserve affirmed its intention to lift rates further in 2018.

Gold prices declined as US Treasury bond yields advanced alongside the US Dollar in anticipation of a hawkish Fed monetary policy announcement, sapping the appeal of non-interest-bearing alternatives. Crude oil prices likewise fell as the stronger greenback applied de-facto pressure on assets quoted in terms of the benchmark currency .

The Fed on Wednesday upgraded its assessment of the U.S. economy and hinted at another interest-rate hike as soon as September.

Rising trade animosities between Washington and Beijing were in focus on Wall Street, as the Trump administration threatened to more than double proposed duties on $200 billion of Chinese goods to 25%, up from an original 10%.

Interest rate hike and escalating trade tensions are giving the U.S. dollar more buoyancy in recent trade, weighing on commodities pegged to the currency.

That has weighed on global stock markets but has provided the U.S. dollar a lift, as global trade tensions have recently flared up.

Rates remained unchanged as widely predicted, the statement released following the meeting of the policy-setting FOMC committee sounded decidedly confident on growth and inflation prospects. That bolstered the probability of a fourth rate hike in 2018 to 58.8 percent, up from 56.5 percent recorded a week earlier.

Investors betting on a stronger U.S economy and higher interest rates have sought out the dollar, sapping any benefits gold and other so-called “safe havens” might have gained from global trade tensions between the world’s largest economies.

Some analysts and fund managers say the dollar has benefited because the U.S. economy would be more resilient in the face of a trade war.

Gold is now fighting varied types of rate. One side it’s the interest rate from the Fed, on the other side it’s the import rates and thirdly the Bank of England rates too. Now all these clubbed together will life gold prices or pull it down- we don’t know- but these combined will definitely influence gold prices significantly.

Is it time to go back to gold

Markets have been more volatile than normal so far this year due to many factors, including geopolitical tensions with North Korea and the Middle East, Italian government upheaval, rampant speculation related to interest rates and the spectre of potential trade wars involving the United States, Canada, China, and European powers as a result of tariffs.

Recently the gold price has depended on the dollar’s cross-border flows. They in turn have been driven by market perceptions of increasing credit risks in emerging market currencies, and the Fed’s policy of normalising interest rates while other major central banks are still applying monetary stimulus. The result has been a stronger dollar on its trade-weighted basis and a weaker gold price.

Spot gold dropped 0.4 percent to $1,225.89 an ounce during Thursdays trading hours, after it rose 0.6 percent on Wednesday. Earlier in the session, the metal hit $1,235.16, its highest in more than a week but eased by the end of the week due to a strengthening dollar.

Gold prices are back under pressure, with the U.S. dollar gaining ground against its major counterparts, and the precious metal may continue to consolidate over the remainder of the week as market attention turns to the Federal Open Market Committee (FOMC) interest rate decision on August 1.

Even though the FOMC is widely expected to keep the benchmark interest rate on hold, Chairman Jerome Powell & Co. are likely to implement higher borrowing-costs over the coming months as officials warn ‘gradually returning interest rates to a more normal level as the economy strengthens is the best way the Fed can help sustain an environment in which American households and businesses can thrive.’

In turn, a batch of hawkish comments may sap the appeal of gold as the FOMC appears to be on track to further embark on its hiking-cycle, and growing expectations for four rate-hikes in 2018 may reinforce a bearish outlook for gold prices on the back of expectations for higher U.S. Treasury yields.

One more interesting thing witnessed during the past week was gold reserves. It seems that strong economies have increased their gold reserves which are a good sign for gold.

CHINA – Officially, China has kept its gold holdings unchanged at 59.24 million ounces since October 2016, or 1,843 metric tons, valuing them at $74.1 billion at end-June. Globally, central banks continue to increase gold reserves, albeit at a slower pace, adding 371.4 tons in 2017, according to the World Gold Council.

However in the past too, China has spent long periods before without revealing increases in gold holdings. When the central bank announced a 57 percent jump in reserves to 53.3 million ounces in July 2015, it was the first update in six years.

So it seems that mysteriously China has been adding to its gold reserves.

RUSSIA- Russia‘s U.S. dollar reserves have shrunk from $96.1 billion in March to just $14.9 billion in May, according to the Russian Central Bank. Its governor, Elvira Nabiullina, says the decision will help protect the Russian economy and diversify the bank’s reserves.

Notably, the Bank of Russia has been buying gold every month since March 2015, overtaking China as the fifth-biggest sovereign holder of gold.

Russia added 500,000 ounces of gold (15.55174 tons) to reserves in June and bought some 106 tons of gold since the start of the year, with total reserves now approaching the 2,000-metric-ton mark. Last year, Russia added a record 224 tons of gold to the reserves.

The Russian central bank hinted that it could invest the money from the USD sale not only into gold, but also into International Monetary Fund (IMF) bonds and Chinese bonds.

But why have these economies diversifying to gold? Well, in periods of global financial or political crises, gold is much more useful than securities or cash, although gold is also prone to price fluctuations.

Moving further, it must be noted here that the gold price is affected, of course, by more factors than simply the US dollar and US interest rates. Equity markets can and do affect the gold price, oil prices too, and there is a long list of non-quantifiable factors that can have a dramatic impact on the gold price. Heightened global political and economic tensions on account of a highly erratic US President may encourage more investment demand for gold, for example. And can anyone fully rule out an Italian exit from the Euro zone and the financial crisis that would follow?

Gold - Half year analysis

We are half way through 2018 and we have already seen gold showing some interesting movements.

The first half of 2018 has been quite action packed for global financial markets. In US and Asia, most of the growth was captured by tech stocks. Equities experienced a few pullbacks during the first 3 months as geopolitical tensions increased. So far, investors seemed to have shrugged off the escalating trade war rhetoric between the US and many of its trading partners.

Gold was up by more than 4 % in the first few months of the year, but finished on a negative note by the end of June. This downward trend continued in July as gold dropped further. Though gold was volatile till the first quarter, it has been moving in a relatively low range since.

The three main reasons being-

• A strengthening US dollar
• Soft physical demand for gold in the first half of 2018
• Higher investor’s threshold for headline risk

Now coming to the second half of 2018. This year, there are plenty of factors which could lead to a medium-term gold price reset which could put that $1,400 price target back in its sights. This may sound over optimistic, but a lot of hope in being built mainly over the belief that we still have 6 months and of those, a lot of things are expected to happen over the second half.

We see a lot of factors that can reset gold price to $1400, we can broadly categorise them into 4 groups-

• Economic development and capital growth
• Global market uncertainties
• Capital flows and price trends
• Competing assets

So now where do we see the yellow metal in the coming months? Well we think that the outlook for gold will mainly be influenced by a few macro trends-

TRADE WARS AND THEIR IMPACT ON EXPORT IMPORT- President Trump’s planned tariff impositions against imports from China and elsewhere have been seen as positive for the dollar and the U.S. economy.  No matter that these tariffs are potentially inflationary in the domestic marketplace and that tit-for-tat measures being imposed on American exports could be very damaging to certain targeted U.S. exporters.

The counter tariffs being put in place could also see a downturn in export-oriented company stock prices, which could lead to a drift downwards in other equities and a drift down could spread to become a rout given the seemingly overbought state of the markets. Thus will have a positive impact on gold and may well push prices high.

EQUITIES - The long equities bull market, which does seem as though it may have come to an end this year, is seen as at least partly responsible for the lack of interest in precious metals investment.  A serious downturn in equities could thus drive investors back in the perceived safe havens of gold and silver.

An equities collapse, which many commentators have been predicting, could initially bring precious metals down with it with investors and funds struggling for liquidity and needing to sell good assets to stay afloat.  We saw this in the big market downturn in 2008, but gold, in particular, recovered any losses quickly and was rising when equities were still turning down.  This is a pattern which could well be repeated.


INCREASED GOLD HOLDINGS - Gold may well be one of the mechanisms being used to help reduce reliance on U.S. denominated reserve assets – certainly by Russia and probably by China which shrouds its central bank gold holdings in secrecy.  But even so this seems to be having little or no impact on the gold price at the moment – but it could have implications in the longer term.

In the long term we do feel that gold has a good future with falling supply and rising demand.  The big question is when will the price turn back upwards again?

Some say soon, while some still support the bears market. But we cannot ignore the fact that a lot can happen in the markets in five and a half months.  We would expect the dollar to start to fall back as the true impact of the Trump tariffs begins to be felt.  U.S. Fed Chair Jerome Powell’s latest fairly optimistic statement to Congress, seen as responsible, at least in part, for the latest gold price dip, in reality only confirmed what had been said before.

We think there’s a good chance that this will happen sometime in the final four months of the year and we might see the gold price reaching $1400 level by year end.

Gold goes weak for this week

Gold has witnessed a decline in the current week thanks to the strengthening dollar. Gold prices fell on Wednesday and Thursday as the dollar traded higher.

The U.S. dollar was performing strong against major rivals on Wednesday, a bullish reflection of upbeat economic outlooks from Federal Reserve Chairman Jerome Powell and the central bank’s Beige Book report.

Gold prices dropped on Thursday as the dollar remained near a three-week high. U.S. Federal Reserve Chairman Jerome Powell’s comments this week implied increasing interest rates and continued to put pressure on the precious metal prices.

Gold prices sank as hawkish comments from Fed Chair Jerome Powell pushed the US Dollar higher (as expected), undermining the appeal of non-interest-bearing and anti-fiat assets. He argued that despite recent worries about trade tensions, the economy remains in good shape and the best path forward continues to be a gradual increase in interest rates.

Powell reiterated the likelihood for gradual interest-rate tightening, suggesting the Fed was on track to raise rates twice more before the end of 2018.

The fall in gold prices came as the dollar held firm against its peers following bullish comments from Powell. The U.S. Dollar Index remained unchanged at 94.84 on Thursday after hitting a three-week high of 95.407 the previous day

On the U.S. data front, housing starts in June dropped by 12.3% from numbers in May, which were also revised lower, and were 3% lower than year-ago levels.

Meanwhile, the pound also weakened against the greenback, late Tuesday in New York. The pound’s slide comes amid signs that inflationary pressures in the U.K. are easing, which make the Bank of England may think twice about raising its key rate by 25 basis points, as is still expected by market participants.

U.K. consumer prices rose 2.4%, unchanged from May and missing expectations of a 2.6% reading. Core inflation slipped to 1.9%, falling below the Bank of England’s 2% target.

Seeing the bigger picture, we can say that the Fed is confident enough of the dollar getting stronger in light of a positive economic growth. And this may result in interest rates hike which will further make the dollar more attractive relatively to other currencies.