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Showing posts with label USD. Show all posts
Showing posts with label USD. Show all posts

Tuesday, 10 July 2018

Gold May Regain its Safe Haven Status

In January, precious metal prices peaked. Since then they have fallen substantially by 9% (gold prices).

In recent weeks, the sell-off has accelerated. There are several reasons for this price weakness.

Trade War - a looming trade war between the US and China has weighed on prices, especially cyclical precious metals such as platinum and palladium.

US Dollar - Rising U.S. Fed rates and rising real interest rates – up 20% from the start of the year as measured by 10-year bonds — are supporting the dollar. While the dollar remains strong, gold is being depressed.
To some effect, the metals markets are experiencing the same depressing impact on prices.
 The recovery of the US dollar is negative for all precious metal prices.

Euro - a downshift in expectations about the euro zone economy has been a negative for precious metals.


Global Markets - weakness in emerging markets has lowered all precious metal prices as well. More recently the substantial fall in the Yuan has accelerated the decline in precious metal prices. Yuan weakness reflects the heightened trade tensions between the US and China and nervousness about Chinese corporate bond defaults. China is a crucial consumer of precious metals. So fears of lower Chinese demand are negative for prices.

But this may not be the end as markets believe that this downfall may continue. The US dollar is expected to strengthen further due to strong economic data and ongoing Fed Hike.

Furthermore, markets look negative for gold as the 10y US Treasury yields is expected to rise.
Gold and other precious metals are highly sensitive to these issues and hence analysts believe the gold, in the near-term, is expected to fall.

In addition, trade tensions between the US and China will probably linger on and there may be more volatility in the Chinese Yuan in the near term. These are also negatives for precious metal prices.
Finally, it is likely that concerns about Italy will return if Italy’s fiscal balance will get into focus again later in the summer. This will weigh on the euro but also on platinum prices as the euro zone is an important market for platinum

In such an environment, holding gold is seen as a cost, not an opportunity. Although market turnover has been high, the bulls have not been in evidence and prices have remained depressed.
BUT HOPE STILL PERSISTS.

Though precious metals are expected to fall, hope still prevails over the factors that support gold prices.

U.S. - By the end of the year US dollar and 10y Treasury yields are expected to peak. Which further pours in the thought that it might pull down from its peak? Lower US growth could result in a downward adjustment in demand.

Moreover, we expect the fall in the Chinese Yuan to come to an end as Chinese authorities will probably intervene to calm sentiment. We find it hard to imagine the Chinese authorities letting the Yuan drop in an uncontrolled manner. However, in the near-term, Yuan weakness may yet continue. In addition, our base case scenario is that a significant escalation of the trade conflict is averted. This should support all precious metal prices.

We expect gold prices to bottom out between USD 1,200 and 1,250 per ounce and silver prices between USD 15.2 and 15.6 per ounce. We see these levels as an opportunity to position for higher gold and silver prices next year.

If sentiments were to change and, for example, growth was to slow in the U.S. in reaction to trade concerns, then gold could make headway. But while the dollar is king, gold will remain lackluster despite rising tensions.

In the near term, we expect weakness in gold to persist, before investors flock to gold’s safe haven status in light of the ongoing trade and geo-political tensions – and the attendant negative consequences that might ensue

Saturday, 27 January 2018

Concerning issue for Gold

The positive effects of a year end are seen hovering around the yellow metal at the beginning of 2018 too. Gold held a strong finishing in 2017, up by 13.5 percent according to World Gold Council.  Gold’s annual gain was the largest since 2010, outperforming all major asset classes other than stocks.



Contributing to this gain was a
Weaker U.S. dollar
Stock indices hitting new highs
And geopolitical instability

All of these combined created an atmosphere of geopolitical and economic uncertainty, thus benefiting gold.

The uncertainties haven’t seemed to calm down, and hence gold continues its rally in the first month of the year. Gold continued to gain some positive traction through the early European session and was seen hovering around 4-month tops touched last week.

The US Dollar sank to fresh three-year lows, below the 90.00 round figure mark and was seen benefiting dollar-denominated commodities - like gold.

Meanwhile in the U.S. some risk-aversion trade has eventually provided an additional boost to the precious metal's safe-haven appeal.

With the USD still struggling to gain any respite, the commodity seems all set to build on its bullish momentum and head back towards testing September 2017 highs

While we see gold touching monthly highs, we shouldn’t forget a concerning issues- What if markets collapse? Well, then  it  could suffer collateral damage as institutions and funds struggle for liquidity and have to sell good assets to stay afloat.

A similar situation had surfaced in 2008 when the stock market collapsed, but gold comparatively has recovered faster than equities and since then went to be its strongest bull market ever with prices rising to new heights of over $1900 an ounce

Now that god prices have reached $1350 an ounce, whether it stabilises there, rallies or gets pulled back--- depends on the U.S. dollar and Whether the U.S. market will allow it to stay there.

Monday, 4 December 2017

Some clear drivers for Gold

A lack of clear drivers has kept gold prices between $1,265 and $1,300 an ounce throughout November, its narrowest monthly range in 12 years. Despite the volatility overnight, it was another subdued session across the precious complex in Asia, with gold struggling above $1,285 an ounce consistently.

The dollar was firm after Wednesday’s uplift on third-quarter U.S. economic growth revised upwards to 3.3 percent, making dollar-priced gold costlier for non-U.S. investors.


Global equities were on course to finish November with a 13th consecutive monthly gain, though a dive in U.S. tech stocks left investors wondering whether the longest global equity bull run in living memory might be starting to splutter.

Also denting investor optimism and signalling underlying support for gold going forward, investors were growing wary about the staggered progress of U.S. tax reform legislation.

Gold drew a certain degree of support in early Asian-Pacific trading from the most recent North Korean missile test, even though the yellow metal did not charge ahead on the latest geopolitical threat, said MKS (Switzerland) S.A.

North Korea said it now has a missile capable of striking the U.S. Wednesday's Asian session adhered to the recent range-bound status quo, however, afternoon headlines out of North Korea did give price action a modest boost.

The latest advances in missile technology in North Korea should provide an underlying bid tone for bullion, with the threat of a potential strike on the U.S. mainland increasing (albeit largely theoretical).

In recent times, such geopolitical tensions have resulted in only short-term price buoyancy and without further headlines to drive interest; participants will turn focus to the upcoming U.S.

Gold prices were down on Wednesday over a statement released by US Federal Reserve chair woman Janet Yellen that economic growth was broad based. This seemed to have convinced investors that rates would go higher soon.

This sentiment was further backed by a strong US economic data which strengthened the dollar further. In response the dollar pushed to a one week high of 93.44 late on Wednesday which further weakened the demand for the yellow metal.  Indeed, spot gold prices fell to $1281.75 per ounce on Wednesday, the lowest since November 23.

How ever amidst geopolitical tension, gold once again regained its safe have status. Reports that North Korea had fired a missile last week, lent support to gold and it moved slightly up in early trading on Thursday. Gold prices have been up and down due to a battle between the positive outlook on a US interest rate and concerns over North Korea firing a missile again.

By Thursday, gold prices were strengthened over a weak US dollar. Moreover, Gold was seen spiking as stocks and the dollar sank after headline reports from ABC that Michael Flynn promised "full cooperation to the Mueller team" and is prepared to testify that as a candidate, Donald Trump "directed him to make contact with the Russians."

Gold and U.S. Treasury prices have rallied to their session highs in late-morning action Friday, with T-Bonds and T-Notes futures posting strong gains, on news reports that former Trump  Administration national security adviser Michael Flynn is set to cooperate with the special prosecutor overseeing the probe of Russian tampering with the U.S. presidential election.

Traders were extrapolating this news to potentially mean that President Trump may be in very serious trouble, if he did indeed collaborate with the Russians on the U.S. election tampering. The U.S. stock market quickly sold off on this news, which also helped to lift safe-haven gold.

A follow-through USD weakness, coupled with a notable slowdown in China's manufacturing activity, as reported by a private survey, was seen lending some additional support to the precious metal.

Despite the supporting factors, resilient US bond yields continued exerting some downward pressure and kept a lid on any meaningful up-move for the yellow metal





Monday, 24 July 2017

Chances of interest rate hike in near future fade

Initially gold began on a negative note. Gold witnessed a decline in prices till mid-week.
However by the end of the week gold prices picked momentum and closed on a positive note.
GOLD BULLION headed for a second weekly gain versus the falling Dollar Friday morning in London, trading at $1247 per ounce as the US currency held at its weakest in 14 months against the Euro.

The greenback faced a fresh barrage of assaults on the currency markets. June retail sales figures and inflation levels disappointed, and this led to a selloff of USD. Headline inflation plunged more than forecast, and retail sales reversed course.  Hence, sentiment towards the USD declined
Gold and the rest of the precious metals were up by an average of 0.3% during trading hours on Friday July 21, with spot gold prices at $1,246.44 per oz, a weaker dollar and continued choppy political waters in Washington providing support.



By Monday, 17 July, the greenback was trading near 10-month lows. Further, news reports of improved economic performance in China sent investors scampering away from the USD towards other assets. Safe-haven assets such as gold, silver, platinum, and the JPY and emerging market currencies gained favour as the USD retreated.

Gold’s rebound found new drive on the combination of the weaker dollar, which we think stems from the weak political scene in Washington and from the less hawkish US Federal Reserve stance.

A weakening dollar along with hawkish Fed comments strengthens gold prices as gold is generally preferred as a mode of investment in times of uncertainty and global turmoil.

It is clear that the US economy is not performing as expected. This naturally dampens expectations and results in weakness for the USD. When traders get antsy, they rush towards safe-haven assets such as gold bullion, and this is precisely what we are seeing now.”

The dollar index continued to fall, at 94.00 it has set a fresh low, these levels were last seen in June 2016. A negative impact on the USD is good for gold. Since bullion is a dollar-denominated asset, demand moves in the opposite direction to the strength of the USD. With weakening sentiment about the USD, foreign buyers of gold purchase more per unit of their currency. Plus, the perceived weakness of the USD drives traders to gold bullion.

With softness in inflation figures, members of the Federal Open Market Committee (FOMC) are reluctant to move forward with additional interest rate hikes. It is more likely that the Fed will opt for an unwinding of its $4.5 trillion balance sheet than more rate hikes this year.

If data continues to be negative and if the third-longest [economic growth] cycle in US history cannot produce a cyclical uplift in wages and prices then gold prices are expected to rise tremendously as any large disappointment in the [global economic] growth story will lead to an increase in gold prices.

The appeal of gold as an insurance asset is greater today than it was at the beginning of the year. It suggests to us that gold continues to be viewed as a [portfolio] diversifies and this should help keep the market supported overall.

The latest economic data releases once again bring the prospect of a Fed rate hike into question. According to the CME Group Fed Watch Tool, there is a 3.1% probability of an interest rate hike on Wednesday, July 26, 2017. For September 20, 2017, the probability of a rate hike is just 8.2%, and for November 1, 2017 the probability of a rate hike is just 11.6%. These economic forecasts are good for gold. Every time the Fed pushes back the prospect of a rate hike, currency traders take a bearish perspective on the greenback which further drives the demand for gold.