Key Drivers Awaiting to Influence Gold - RSBL

 The past week in the gold market was significantly shaped by the Federal Reserve’s cautious approach to interest rate cuts. Federal Reserve speakers, including Fed Governor Christopher Waller and Fed Governor Lisa Cook, emphasized the need for more evidence of cooling inflation before considering rate reductions.

Gold prices were set for a weekly gain on Friday, buoyed by a softer dollar and safe-haven demand from escalating tensions in Middle East even as US Federal Reserve officials bruised the hopes of early rate cuts this year.

Currently gold faces a major threat from inflation data. There is lot of speculation in the market which has pushed investors towards safety buying. Markets even speculate that rate cuts might come soon- probably June or September. 

Though gold prices remained range bound as U.S equities performed well, it’s the risk-on environment here versus flight-to-safety buying. 

There are key economic numbers and important data set to release this week. Investors remain focus on these indicators as they will play a crucial role in influencing gold prices-

• new home sales on Monday,

• durable goods orders and consumer confidence on Tuesday, 

• Preliminary Q4 US GDP On Wednesday 

• pending home sales on Thursday

• PCE price index on Thursday

• ISM manufacturing PMI on Friday.

Several Fed officials are also set to speak later this week, and are expected to largely reiterate the bank’s outlook for higher-for-longer rates, amid concerns over high inflation.

Beyond the PCE data, a second reading on fourth-quarter gross domestic product is also due this week, and is expected to show some cooling in U.S. economic growth. But not to an extent that warrants early interest rate cuts.

Higher-for-longer rates bode poorly for gold prices, given that they increase the opportunity cost of investing in the yellow metal.

As we know the current market has a host of events lined up for gold, but there are some major Drivers in the current year that will play a key role in pushing gold prices high. We say this owing to the bullish sentiments in the markets and the major events that are lined up- 

• Geopolitical issues out there that could drive it higher. 

• Dropping Interest rates d should drive it higher 

• Weakening US dollar. 

• U.S Elections 

But a major long-term influencer for gold will be its global demand. Central bank purchases are strong and geopolitical tensions are high. Gold buying by central banks — particularly from China and India — have helped offset money flowing out of gold exchange-traded funds. Those purchases have been driven in part by geopolitical tensions, such as Russia’s invasion of Ukraine, and the Covid pandemic.

Key to gold’s current popularity is China’s lacklustre post-Covid recovery, which is hitting young people especially hard as youth unemployment soars and traditional investment options such as property suffer, analysts say. Gold prices are poised to rise as central banks purchase the precious metal and as strong retail demand in emerging markets bolsters prices.

The yellow metal is forecast to climb about 6% in the next 12 months to $2,175 a troy ounce. Gold prices can be seen hitting $2,210 an ounce by the fourth quarter of this year, reaching a new all-time high

Dampened Demand For Gold Over Rate Hike

 Last week gold ended  with a nearly 0.35% gain at $1,989.65, failing to close above $2,000 throughout the week. Concerns about rising inflation continued after 1Q A core PCE QoQ and 1QA GDP price Index came in higher than expected.

These damp sentiments continued as the week opened. Gold prices moved little in early Asian trade on Tuesday, hovering well below key levels as anticipation of a likely interest rate hike by the Federal Reserve supported the dollar and dented demand for the yellow metal.

Federal Reserve’s policy meeting due in 2-3 May this week remains each investors focus. The Fed is widely expected to deliver another 25 basis point rate hike on Wednesday amid strong US economic data and persistent inflationary pressures. Data showed that US consumer sentiment improved in April, while core PCE inflation exceeded forecasts in March.

But there is uncertainty about rate hikes and markets are not sure whether the central bank will signal a pause in its gold rate hike cycle.

This has kept demand for gold limited, given that rising interest rates push up the opportunity cost of holding non-yielding assets.

Bullion is known as a hedge against inflation and economic uncertainties, but rising gold rates tend to diminish demand for the zero-yielding asset.

Markets were also watching for a potential U.S. debt default, especially as a deadline for the government to raise the debt limit approaches. Treasury Secretary Janet Yellen warned of a potential default by as early as June 1.

Gold has struggled to hold the $2,000 an ounce level for nearly three weeks, as the yellow metal consolidated gains after surging to near-record highs earlier in April.

The short term and near term future of gold , is both uncertain and indecisive 

The next 18 months will be especially risky as the U.S. embarks on the 2024 election season

The political timetable of the election cycle between now and the 2024 elections in the United States and Taiwan will likely lead to more push-the-limit anti-Chinese aggressive foreign policy from the US. 

Fears of the Fed, coupled with a stronger dollar and yields will continue to see limited safe haven demand for gold, even as concerns over a U.S. banking crisis were renewed by the emergency takeover of First Republic Bank.

The future path of the yellow metal is likely to be determined by the Fed’s stance on interest rates,  any new developments in the banking crisis, important decisions before the election campaigns and most importantly the US China ties. 

It's A Big Week For Gold

Gold was going gaga over the ongoing uncertainties globally. There were a host of reasons combined that led to this spike 

Gold, the safest haven amid the ongoing uncertainty, also emerged as one of the most lucrative investment options in financial year 2022-23 with an impressive return of 16.1 per cent in rupee terms, and 2.3 per cent returns in dollars.

Since quite some time we have seen gold rates playing to the moves of either inflation number from US or the Ukraine Russia war. However, there have been a lot of influential factors that have been responsible for the rally in gold prices lately and will continue to do so. 

Effect on Gold rates due to the

Banking crisis- The banking crisis, triggered largely by continuous hikes in the US rates, has led to bleeding bond portfolios and only large banks can survive these losses, the rest could belly up. It has definitely played a key role in gold prices rally and shall continue to do so as many analysts believe that this is just the beginning of a banking crisis.

This scenario will keep safe haven appeal for gold rates

Inflation and gold rate hike - A lot hinges on whether inflation in the US stays above four per cent and the Federal Reserve effectively gives up its target of bringing inflation down to two per cent.

This could happen if there is intense political pressure on the Fed or if the US economy enters recession or suffers a banking crisis.

If the Fed starts cutting the gold rates while inflation is still high, gold may see an accelerated move higher.

Geopolitical - Apart from the ongoing Russia- Ukraine war there are other countries following suit which will definitely benefit gold. If China attacks Taiwan and if the US decides to defend Taiwan, gold prices could shoot up.

On the other hand, if Washington does not defend Taiwan, expect a quick move up and a quick retracement in the price of gold.

Physical demand - The key thing right now is that Russia and China appear to be accumulating reserves in a diversification away from US dollars. That China’s appetite for gold remains insatiable as the latest data from the People’s Bank of China bought 18 tones of gold last month.

China’s gold shopping spree hit its fifth consecutive month

According to many analysts, China’s dominating presents in the precious metal market is completely changing the investment landscape, creating solid value for investors.

Analysts note that China is expected to continue to increase its official gold reserves as it builds international credibility for the yuan. China continues to make important strides as it competes with the U.S. dollar as a world reserve currency. Any kind of physical demand will set gold prices rolling up.

However on the domestic front the recovery gold prices will not rise comparatively for Indian investors as the movement of the dollar-rupee rate is expected to be a key determinant and is likely to limit the gains.

Meanwhile, the volatility will continue if the new US jobs report this week confirms there will be worries ahead for the economy.

It's a big week ahead for Gold!

Gold Might Perk In the Near Future

We all know that when gold prices rally, all market players join the bull’s bandwagon. Currently, also markets have not left a single stone unturned in proving the fact that gold will touch $2000 an ounce by year-end and cross Rs. 40,000 per 10 gram in the domestic market.

Well, it’s too early and even very difficult to predict even the near term gold price movements because there is so much happening around that stabilizing gold prices seem to be a far reality.

There are three reasons why gold has popped in the last several months -

• Recession risks that have gone up.
• Rates that have been trending lower
• 10-year real yields have gone from 1.2[%] to 25 basis points.

Last week following dovish comments from New York Fed President Williams gold prices traded above U.S. $1450. Less than a day later a spokesman for the New York Fed “clarified” Williams comments saying they were not about immediate policy direction.

If you found last week’s dovish Fed message followed by the backtracking in follow up news articles confusing you are not alone Geopolitical risks from the Persian Gulf could provide some support for the yellow metal, but the next major move will likely be if the Fed is dovish enough for markets. Last Friday, with US Iran tensions escalating, precious metals were seen at new 2019 highs.

Currently gold is at a 6,5year high but it couldn’t sustain. The $1415- $1420 in general is good support to revisit towards $1450-$1460.

After five years of being stuck in a trading range, gold prices have broken out in the last six weeks, igniting a rally to multiyear highs. Prices held near those highs on Monday as investors awaited word from the Federal Reserve about whether the central bank would cut interest rates at its next meeting.

Making the decision less clear cut, tensions between the U.S. and Iran continue to escalate, and with market pricing set at more reasonable levels, there is room for both the ECB and FOMC to deliver a dovish surprise at their upcoming meetings.

The year of 2008 brought 350 basis points of softening into US rates. And then it took a full seven years for the Fed to make another move when the Yellen-led Fed posed her first actual adjustment to the discount rate. Another hike followed in 2016, a little over a month after the US Presidential Election; and then a full seven rate hikes followed in 2017 and 2018. Suffice it to say, this was a stark change-of-pace to a market environment that many had come to rely upon.

Joining these series of events, 31st July at 11.30 pm (IST), The Fed verdict will be stamped and till these 8 days, the markets speculation will also continue.

On Tuesday President Trump stressed his point to US Fed to initiate a sharp interest rate cut. Rather his recently appointed Fed member Shelton advocates for 50bps cut.

So whatever happens on 31st July, gold is still expected to perk as dovish statements will be associated with the event.

In summary, despite the possibility that the current pullback has further to go, our managing director, Prithviraj Kothari feels that the uptrend in gold is likely to re-establish itself with potential towards the next upside target of U.S. $1480/1500.

Gold declined but still a favorite

Since the turn of the century, the gold industry has experienced a roller coaster ride, with prices rising from $255 an ounce in 2001 to highs of $1,906 a decade later, before falling to $1,056 by December 2015. After a gap of almost 4 years, gold is being seen on the green path once again.

Lately, Gold prices have largely been stuck in a range of between $1,217 to $1,330. Though gold started the year on a positive note, last week it did witness a decline in prices.

The sentiments continued to flow in this week too. Gold prices slipped on Monday and they further slipped for a fourth straight session on Tuesday as recent upbeat economic data and signs that Washington and Beijing were making headway in a nearly year-long tariff skirmish boosted risk sentiment.

The main reason for the decline in gold prices were the data numbers coming in from world economies.

Pressures were created on gold as improved economic data came in from China. China reported better-than-expected credit and export figures last week that allayed concerns regarding the pace of economic growth.

• Coming to the U.S., the dollar held firm on Friday after strong U.S. labour and inflation data soothed concerns about the world’s largest economy. As we all know that dollar and gold are inversely related and hence a strengthening dollar pulled gold prices down.
• Furthermore, falling oil prices weighed on commodity-linked currencies such as the Canadian and Australian dollars.
• The number of Americans filing applications for unemployment benefits fell to a 49-1/2-year low last week, pointing to sustained labor market strength that could temper expectations of a sharp slowdown in economic growth.
• U.S. producer prices increased by the most in five months in March, but underlying wholesale inflation was tame.
• U.S. President Donald Trump on Thursday expressed a willingness to hold a third summit with North Korean leader Kim Jong Un but said in talks with South Korean President Moon Jae-in that Washington would leave sanctions in place on Pyongyang.
• European Union countries gave initial clearance on Thursday to start formal trade talks with the United States, EU sources said; a move designed but not guaranteed to smooth strained relations between the world’s two largest economies.
• The six-month delay of Britain’s exit from the European Union avoids the “terrible outcome” of a “no-deal” Brexit that would further pressure a slowing global economy but does nothing to lift uncertainty over the final outcome, the head of the International Monetary Fund said on Thursday
• Moreover, growing optimism over a US-China trade war resolution strengthened the dollar.
• Better economic conditions stoke investors to pivot towards equities that are interest-bearing assets, and shun the non-yielding bullion

But still gold is expected to perform better in the following months. Gold has been witnessing a great start in the current year and many market players believe that it will continue to do so in the near term-  mainly due to
• Concerns over global economy
• Geopolitical issues
• Federal Reserves less aggressive stance on interest rates. The view is that there won’t be any interest rate rises this year, which again will be supportive for the precious metals sector
• Global uncertainties
• Central bank buying
• US China trade war
• De dollarization

Gold is expected to garner safe-haven interest as investors look to protect themselves against an impending recession which might even push gold above $1400 an ounce by the second half of 2019.

Go for Gold

Past 6 months have been really great for gold. Gold prices have surged 14% since late August, when the Nasdaq Composite Index last hit a fresh record, and stand at their highest level since last April (* source- the Journal).

Gold has been influenced lately by many factors clubbed together. All these combined, have been pushing gold prices higher despite last years Fed rate hike, so it’s clear that gold is not dependent on just one factor for its price movement. Though US plays an important role in influencing gold prices, currently there are many other factors that need to be considered where gold prices are concerned.

World economies - The recent increase in gold price is in fact a proof that the slowdown has already started. Interestingly though, the increase is not the result of investors seeking a safe haven in a year that seems financially and economically awkward. That is, there are low interest rates in developed economies, higher rates in developing and emerging ones, and hence relatively higher risks of investments. In addition to the above, an increasingly protectionist trend could undermine the flow of global trade and negatively impact countries with economies highly dependent on international trade for their diversification.

Safe haven - Gold prices have climbed as investors uncertain about global growth outlook hedge their portfolios. Amid global political and economic uncertainty, the precious metal has become a compelling choice for money managers seeking to hedge their portfolios at a time of anxiety over economic growth and trade conflicts between the U.S. and its partners.

Central bank buying - In a report by the “Financial Times”, China purchased gold in late 2018, while its last purchase was more than two years ago. Poland, which hasn’t purchased gold since 1998, has lately added to its gold reserves. According to the same report, countries through their central banks have increased their gold purchases by “almost 75 per cent” in 2018. An increase in demand leads to an increase in prices too.

China, the top gold producer and consumer, is beefing up holdings amid signs of slowing growth and uncertainty about whether the trade fight with the U.S. will get resolved.

US trade war - Though the severity of the trade war is hanging loose, but any progress in this regards immediately affects gold. Trump said on Sunday he would delay an increase in tariffs on Chinese goods that had been scheduled for later this week, citing “substantial progress” in Sino-US trade talks over the weekend, and that he and his Chinese counterpart would meet to seal a deal if progress continued. This statement weakened the dollar against the Yuan.

The offshore Yuan strengthened 0.6 per cent to 6.673 Yuan against the dollar, after hitting its highest level since mid-July, on the news that Trump might not raise tariffs on $200 billion of Chinese imports to 25 per cent from 10 per cent.

As we all know that gold and dollar are inversely related and hence any weakness in the green back pushes the metal prices up.

But what’s interesting to see that annually gold has not generated returns yet, but it still seems to be investors favorite especially when they done know where to park their cash. This favouritism comes amidst the fact there bank deposits are no longer financially viable and other assets in its class aren’t giving that safe haven appeal. 

As a result, the alternative is to go for gold and settle for capital return, an increase in gold price which needs to be high enough to exceed inflation plus profit to make purchasing and holding it worthwhile. The trend in gold price seems to be headed upwards, and it may be a good time to get in, even if the best time to get in was when it was at $1,200 an ounce level.

Gold prices, though hinting at a looming bearish correction on risk-on market sentiments, will remain firmly supported on rising economic uncertainties and heightened geopolitical risks in 2019. Therefore, in light of low interest rates and a lack of clarity with regard to the world’s economic prospects, the gold price is expected to continue climbing. As it does, it may not stop at the $2,000 per ounce level realized two years post the 2008 financial crisis, but possibly higher.

A similar trend was witnessed post the increase in 1971, except that in every cycle, previous records for the highest gold price reached are usually broken. Not only that, the time elapsed between one cycle and the next is getting shorter.

Key data shifts market sentiments

Last week a lot was happening for gold globally and in the domestic market. While there was important data released from the US, in the domestic market too all eyes were glued to the interim budget. While internationally, Fed rate hike is the topic of discussion, in India Gold duty cut was also being discussed strongly. We shall discuss the budget later.

Let’s have a look at the key economic numbers and how it affected gold and dollar.

• Nonfarm payrolls rose more than 300K, which was significantly better than the 165K forecast and matched December's +300k rise
• Manufacturing activity accelerated 
• University of Michigan Sentiment index was revised slightly higher for the month of January. 
• Stocks extended their rise. 

Not only does this report tell us that the government shutdown had limited impact on the labor market but after revisions, job gains averaged 241K over the past 3 months. However even though the labor market is on fire, wage growth is slowing and there's a very good chance of downward revisions next month. More importantly the change in the Federal Reserve's monetary policy statement is significant enough to keep the US dollar under pressure so don't trust the rally.

Although employment continues to expand, wage growth remains tepid. The report said that average hourly earnings increased 0.1% last month or by 3 cents, missing expectations. Economists were expecting to see wages increase 0.3%. For the last 12 months wages increased 3.2%. The U.S. dollar rebounded against all of the major currencies on Friday on the back stronger economic data.  A lot of the Fed's concerns stem from events like Brexit, funding for the US government and US-China trade issues that could be resolved over the next few months

The gold market saw some selling pressure Friday after the U.S. labor market showed strong growth in January, according to the latest government employment data. This sentiment continued as the week opened on a negative note for gold.

Gold prices dipped slightly on Monday as the dollar held steady on upbeat U.S. jobs and factory data that prompted markets to reduce bets on a rate cut later this year.

In the Indian markets, gold markets weren’t much active as while jewellers held off on purchases in anticipation of the country’s budget presentation on Friday.
India’s bullion industry has been urging a tax reduction to combat smuggling, which has increased since the country raised the import duty to 10 percent in August 2013 to narrow its current account deficit.

However, the interim budget presented by the Indian government on Friday did not include a change in the duty and hence not much activity was seen.
But India’s counterpart China, was showing a different t picture altogether. The demand for gold in China was quite on the rise.

On the occasion of Lunar year (which falls in the first week of February), generally, gold is considered as one of the best gifting medium. Demand for physical gold gathered usually increases in China ahead of the Lunar New Year holiday.
Another interesting gold purchase figure that saw record highs was from the central banks. 

Official gold purchases reached a new record in 2018 as central banks continued to diversify away from the U.S. Dollar.  Not only was 2018 a banner year for central bank gold purchases, but it was also the highest amount for more than five decades.  Central banks haven’t bought this much gold in one year since Nixon ended the convertibility of the U.S. Dollar into gold in 1971.

Despite the latest economic reports, the economy is still slowing but if Congress passes a permanent spending increase, the UK reaches a withdrawal agreement with the EU and the US forgoes further tariffs on China, 2 rate hikes this year could still be justified. With that in mind, any one of these discussions could go south, sending the markets into turmoil. Press conferences after every meeting this year gives the Fed the flexibility to change policy as needed and so far, domestic and global uncertainty justifies the need for patience. There's not much in the way of US data, so the dollar could resume its slide.

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.

Think Positive

Whenever gold tries to move up, the market starts doubting its behaviour. The gold price did manage to end the past week above $1200 mark.

Gold prices rose on Friday following a monthly U.S. employment report falling to its lowest level in a year.

Spot gold rose 0.3 percent at $1,202.40 an ounce. It had gained 0.6 percent so far for the week, on track to mark its biggest weekly gain in six.

Data coming in from the US was responsible for this positive trend in the yellow metal-

• Non farm payrolls rose just 134,000, well below Refinitiv estimates of 185,000 and the worst performance since September 2017 when a labor strike weighed on the numbers.

• The unemployment rate fell two-tenths of a percentage point to 3.7 percent, the lowest since December 1969 and one-tenth of a percentage point below expectations.

• Augusts’ initial count was revised up dramatically, from 201,000 to 270,000, while July's numbers came up as well, from 147,000 to 165,000.
• 
  
• The revisions bring the three-month average growth to 190,000 while the 12-month average gain is 201,000.

But the question once again was how far will it stay here? Will it move forward or once again it will turn down to its low of $1183?

Despite the weekly gain, gold prices have fallen more than 12 percent from a peak in April largely due to strength in the dollar, which has benefited from a vibrant U.S. economy, rising U.S. interest rates and fears of a global trade war.

The fear is that the rising dollar is going to cause a huge rout in the emerging markets and investors want to hedge that risk

Recently gold has been hovering between $1190 and $1210, not being able to cross these marks – neither upside nor downside.

The reason being- if there are 2 drivers for gold prices then on the other hand you would find 4 more factors are that ready to pull it down.
Currently some short term influencers are making it difficult for gold to amend its behaviors.

One of the strongest influencers for gold as of now is the US dollar and the US economy which are totally relative to each other.

Dollar has remained strong for quite some time. The US economy is also believed to be moving gradually on a positive growth path, which has further initiated the Fed to raise its interest rates in December. Moreover, it’s expected to bring in few more hikes in 2019 too.

What further raises interest is that the current trade war between US and Chine is acting positive for the US economy?

There has also been some settlement in terms of the rehashing of NAFTA as the USMCA (U.S., Mexico, and Canada Agreement which promises trade stability between the three North American nations, although when the small print is examined in detail it may leave the participants unhappy with the likely outcome.

Gold ETF saw huge withdrawals and equities markets displayed new records. All these clubbed together has been a big reason behind gold’s current behaviors. Even in this wary situation, some players are still holding positive sentiments for gold.

And one of the main reasons for this is central banks. Central banks across the world are hoarding gold amid growing fears about global volatility and a possible downturn for financial markets.
They have snapped up almost 275 tons of gold this year alone – 8 per cent ahead of 2017 – at a cost of more than £13 billion.

Many national banks have been returning to the market for the first time in years. India bought eight tons, its first purchase since 2009

Furthermore, if funds start moving back to the ETFs that would be a good sign that we could be at a turning point.

Gold believers have a strong faith in this safe haven asset and are waiting for it to rise in the long term as there are many positive things waiting to occur which will create a constructive impact on the yellow metal.

• U.S. total debt and monthly deficit seems to be accelerating
• Central bank gold buying appears to be increasing;
• The dollar may be in the process of being downgraded as the world’s reserve
• And precious metals demand appears to be rising in the key Asian and Middle Eastern markets

So gold is being pulled between the bears and the bulls of the short term and long term futures.

Much of the volatility will depend on the dollar and in case the dollar starts losing its global presence then gold price in the dollar terms is expected to rise,

Not forgetting the other geopolitical factors. Gold investors are very much positive for gold in the long run and believe that though it will hover around the $1200 mark for the time being, but will soon rise.

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?

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.

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.

Strengthening Dollar May Pull Down Gold Prices

Gold closed the second quarter around the low for the year as the widening tariff disputes boosted the dollar.

Currently in the short run, many factors are negative for gold: the strong dollar, monetary tightening and the easing of tensions with North Korea.

Gold prices traded in a narrow range on Thursday, after hitting a one-week high on Tuesday, amid an easing dollar and as the markets awaited minutes from the U.S. Federal Reserve’s June policy meeting.

The metal touched a one-week high at $1,261.10 in the prior session and gained over $20 from Tuesday’s low of $1,237.32 an ounce, it’s weakest since Dec. 12.

The dollar index, which measures the greenback against a basket of six major currencies, was down 0.1 percent at 94.539.

Last month, U.S. Fed Chairman Jerome Powell said the central bank should continue with a gradual pace of interest rate rises amid a strong economy to balance its employment and inflation goals.

In its June meeting the central bank had projected two more rate hikes in 2018 for a total of four.

Interest-rate expectations, and with them, a higher dollar, have almost exclusively accounted for gold’s retreat. Higher rates dull the appeal of non-yielding bullion, while a firmer dollar makes the gold priced in the U.S. unit less appealing to investors using another currency and any further rate hike is expected to pull down gold prices. What’s not known is the severity of the downtrend.

Get ready to see Gold on a roller coaster ride

While in the domestic markets we saw jewellers preparing in full swing for Akshaya Tritiya, in the global markets we saw gold moving in full swing.

Jewellers are expecting 15-20 per cent increase in sales this Akshaya Tritiya, mainly on the back of positive market sentiment, stable prices and ongoing wedding season.

Apart from the auspicious occasion of Akshaya Tritiya the wedding season is also lined up for the month of April, May and June, which has raised the demand for gold further. As buyers expect further rise in gold prices, they have started making their purchases to avoid any further price rise.

Overall there is a positive sentiment in the market so a sales growth of 15-20 % is expected this Akshaya Tritiya.

Globally so far, gold has risen more than 3 percent this year, marked by international tensions and volatility in equities, but has yet to emerge from a tight trading range in the face of an expectation for rising U.S. interest rates.

Prices for gold this week rose to their highest levels since Jan. 25, as escalating tensions in Syria, U.S. sanctions on Russia and the U.S.-China trade stand-off weighed on global equities and the U.S. dollar index.

Gold's safe haven status was tested this week as Donald Trump's economic war threatened to turn into a shooting war, with a number of global spots getting hotter. Precious metal moved from a close of $1325.69 an ounce on April 5 to $1337.90 on April 12, dipping on Thursday after reaching a high of $1364.50 during Wednesday morning trading – the highest it's been since Feb. 14
So far, Gold has also outperformed all other precious metals this year.

The headlines this week have been full of escalations of continuing and new conflicts around the world. Here is a rundown-

Trade Wars- Countries over the world are now dependent on each other for exports and imports.
Many major American companies that are household names such as Starbucks (SBUX), Boeing (BA) and Apple (AAPL) rely on their exports (and imports) from China for a sizable portion of their overall sales and profits.

But the escalating trade war between China and US could hurt the revenues of these companies as each country is retaliating with its own harsh measures.

But there are news revolving in the markets that has China just recently launched a new $1.6 billion initiative called “Made in China 2025.”

This initiative would focus on an increase in research and development spending thus making China more self dependent which will further help companies to rely less on international technology and equipment. The more China buys internally, the less it will buy American products or need to export to the U.S.

That means it could shift its trade focus away from the U.S., while purchasing fewer American goods. All of that could hurt manufacturers in both countries and increase volatility into the share prices of companies involved.

Geopolitical- There is rising tensions on the geopolitical front as US is expected to attack Syria any moment now in response to the chemical attack against civilians last week. But Russia has warned that in this course if Russian military personnel are harmed in any manner then US should be ready to face “grave consequences"

Now that President Trump has John Bolton as his National Security Adviser, the geopolitical spot has increased even further. On Feb. 28, Bolton published an op-ed in the Wall Street Journal supporting a preemptive nuclear strike against North Korea.

On Wednesday Trump cranked up the threats, tweeting “Get ready Russia, because [missiles] will be coming, nice and new and 'smart'!” which caused the spike in the gold price. Later he appeared to open a window to a more peaceful solution, tweeting that “it could be soon or not so soon at all,” causing gold to lose its earlier momentum.

That gives us an insight into what policy recommendations President Trump might be provided with now.

Even the perceived threat of diplomatic fallout and rumors of a military response can elevate volatility. War games between the U.S. and North Korea would be expected recoil — and that would mean uncertainty over China’s response.

That would give greater rise to volatile conditions in trade, regional security and stability on the Peninsula. By isolating China — North Korea’s top economic partner and military alley — tensions would only escalate.

Needless to say, any armed conflict between two nuclear powers carries great potential risk. One single incident could trigger an escalating spiral.

US Political Risk- November will also bring along a lot of volatility and uncertainty as midterm elections are going to be held.

The U.S would be caught up in more political instability that will harm market stability which further raises concerns that markets are being left uncertain and pondering to guess what happens next?

The world has become a much more dangerous place in the last few weeks. Between competing naval exercises in the South China Sea, a chemical weapons attack in Syria, US and European sanctions on Russia, a likely showdown over the Iran nuclear deal, and a host of other (i.e. India v Pakistan) conflicts not even mentioned here, investors have reason to turn to safe-haven assets – and gold has benefited.

Threats of war are always factored into the safe-haven value of gold on any given day, but we may be witnessing a sea-change where it is difficult to imagine a return to any sense of normalcy anytime soon – especially given Trump's determination to put America's interests first despite ruffling a lot of feathers with both allies and adversaries.

Given these hotspots for the next three months or even further, we expect gold to move on a rollercoaster ride.

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.

A bad week but a good quarter for gold

It wasn’t a much pleasant week for gold as it posted its biggest one-day percentage fall in nearly 9 months.

On Wednesday, the yellow metal suffered its biggest one-day loss since February to settle at a one-week low, reacting to a firmer dollar as it deepened a pullback from the more than one-month highs seen earlier in the past week.

Though there was a moderate weakness seen in the US dollar, the yellow metal didn’t much benefit from it. Gold continued to remain under some selling pressure consecutively on Wednesday and failed to employ any positive movements.

Wednesdays’ fall saw gold retreating around 2.5% from near 6 week tops that it touched on Tuesday. Gold posted its biggest one-day percentage fall in nearly nine months on Wednesday after robust U.S. data lifted the dollar, which steadied at those strong levels on Thursday.
   
Gold prices are currently flat after a big move down on Wednesday. The culprit for the move in gold appears to be recent strength in the US dollar. As gold is traded against US dollars, a stronger currency pushes down the precious metal in relative terms.

Even the ongoing slide in the US Treasury bond yields did little to lend any support and stall the non-yielding yellow metal's downfall to over one-week lows.

On the other hand, the European equity markets created bullish sentiments for gold. Furthermore, gold prices held largely steady on Thursday, as tensions over North Korea and global trade eased.
 
North Korea's leader Kim Jong Un pledged his commitment to denuclearisation and meet U.S. officials, China said on Wednesday after his meeting with President Xi Jinping, who promised China would uphold friendship with its isolated neighbour.

Gold prices slipped on Thursday as the U.S. dollar held its strong gains from the previous session, but simmering tensions over Russia and a potential trade war offered underlying support.

Moscow threatened to retaliate after the United States and other Western countries expelled more than 100 Russian diplomats over the poisoning of Russian former double agent Sergei Skripal and his daughter in England with a military-grade nerve toxin.
                         
Though gold had a bad week, but for the quarter gold fared well. Often seen as an alternative investment at times of political and financial uncertainty, gold was on track for a third straight quarter of gains, up 1.7 percent as of Thursday as United States precious metals markets were closed on Friday for the Good Friday holiday.

While spot bullion was little changed at $1,325.17 an ounce on Thursday, the metal was up 1.7 percent this quarter, following a 1.8 percent gain in the final three months of last year. The rise comes even as the Federal Reserve has been pulling the trigger consistently on U.S. interest rates and despite Wednesday falling by the most since July.

Gold’s haven qualities have come back in focus this year as a series of events were witnessed-

• President Donald Trump’s administration picked a series of trade fights with friends and foes escalating global tensions.
• Investors worry about equity market wobbles that started on Wall Street and echoed around the world. 
• Geopolitical tensions with North Korea 
• Trump’s pick of John Bolton as his new national security adviser spurred speculation of a potentially harder line against Iran

As these series of events will increase safe haven buying in gold, what raises concerns is whether this rising demand will be met. Furthermore growing geopolitical risks could concerns of supply-side issues in the oil market.

A turbulent week for gold

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Gold being bought on dips

Last week saw gold record its sharpest weekly gain in more than a year, as it fed off the dollar’s slump. As the week began, gold fell modestly on Monday in electronic trade, though in thinner action, as many traders took the day off for the Presidents Day holiday.

Gold prices were hit on Tuesday, with the commodity booking its sharpest daily decline in more than a year, against a backdrop of a strengthening dollar and stabilizing equities.

Gold seemed struggling to gain any grip and remained within striking distance of one-week lows. A strong follow-through US Dollar buying interest, further supported by a positive tone surrounding the US Treasury bond yields, continued to dampen demand for dollar-denominated commodities - like gold.

The precious metal dropped to an intraday low level of $1325 but further losses remained limited in wake of reviving safe-haven demand on the back of a sharp turnaround in European equity markets.

Precious metals lost ground as the dollar sprung higher following last week’s sharp decline, which has mostly extended a protracted downtrend for the commodity-pegged currency. A weaker dollar can boost commodities priced in dollars, because it makes them cheaper to buy for holders of other currencies.

Another turn-around in the dollar has weighed on gold, especially as it happened when gold prices were once again challenging recent highs.

The rebound, however, lacked any strong certainty amid expectations for a faster Fed monetary policy tightening cycle. Hence, the key focus would remain on the highly anticipated FOMC meeting minutes, which would help determine the next leg of a directional move for the non-yielding yellow metal.

Even though gold lost its lustre, market players saw this dip as a good buying opportunity. Exchange-traded funds increased holdings of gold and silver this week, reports Commerzbank.  Investors appear to be viewing the price slide as a buying prospect, as gold ETFs saw inflows of 2.7 tonnes

Bullions Attracts Investors

Dollar remained weak in spite of a strong economic data and gold was once again in demand acting a hedge tool against inflationary pressure.

Gold prices edged higher on Friday, heading for their biggest weekly percentage gain in nearly two years, buoyed by a weaker U.S. dollar and as investors looked to hedge against inflation.

After April 29, 2016, we saw gold rising more than 3 percent in a week. Spot gold was up 0.4 percent at $1,358.40 an ounce on Friday, after touching a three-week high of $1,360.
   
There was high demand for gold ahead of the Chinese New year. This rise demand along with a weak dollar pushed gold prices higher.

The dollar slipped to a three-year low against a basket of currencies on Friday, and was headed for its biggest weekly loss

in two years, as bearish factors offset support the U.S. currency could take from rising Treasury yields.

The important data released was     
• U.S. producer prices accelerated in January,
• There were strong gains in the cost of gasoline and healthcare.
• The Labour Department said its producer price index for final demand rose 0.4 percent last month after being unchanged in December.
• The Labour Department said initial claims for state unemployment benefits increased by 7,000 to a
• Seasonally adjusted 230,000 for the week ended Feb. 10.

Gold continues to carry its shine in the second month of the year. The spill over effect continued for gold in Feb as we saw the yellow metal gaining positive traction for the fifth consecutive session on Friday and moved within striking distance of multi-month tops, set in January.

Over the last couple of weeks, we have seen a lot of things happening globally. And the moist important was the stock market pullback that the world markets witnessed a couple of weeks back. This volatility kept investors focused on rising bond yields (inflation) and potential interest rate hikes.

There is a lot of uncertainty and volatility prevailing in the markets and one sectors that totally benefits with such a crisis is the commodities sectors, precisely bullions
And that the reason investors tend to divert their portfolio into safe havens- bonds and gold

 The yield on the 10-year US Treasury bill hit 2.88% and gold resisted its usual trend of moving inversely with the dollar by gaining six tenths of a percent to $1,345 an ounce.
Currently, after viewing the various markets, investors feel that the safes place to park your funds is the commodities markets. There are many reason that justify this thought-

Inflation
The higher the rate of inflation, or expectation of inflation, the more yields rise, because bond investors demand higher yields to be compensated for inflation risk.

Commodities can be the beneficiary of higher bond yields especially if long-term interest rates rise.


Weak US dollar 
Commodities are priced in US dollars, so there is a strong correlation between the strength of the dollar and commodities. A weak dollar plus a basket of currencies being strengthened on the other side, is making gold more attractive,

The USD has dropped in relation to other competing currencies, such as the euro, the pound and the yen. Rising inflation is also diminishing the value of the dollar is diminished. Moreover, uncertainty about US trade relationships has also weighed on the greenback.


Rising Demand but shortage in supply
Most of the gold market is driven by investment, but there are some interesting things happening that makes this a very good time to consider an investment in gold or gold stocks.

Simply put, the world is running out of gold, especially the stuff that’s high grade and easy to find, and this makes me bullish on the precious metal - irrespective of all the familiar demand factors like safe haven, inflation hedge and store of value.

Till 2014, commodities were not considered to be a real fund puller. Many kept away from the bullions as there were other options, like rising equities where investors ploughed their money. But now , that the precious metals are giving incredible returns and also proving to be safe haven assets, its time that investors start re thinking of parking their funds into this sectors that continues to gather momentum in 2018.

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.