2018 kicks off a good start for gold

Recent weeks have shown strong rallies for precious metals and its looks like ass id prices are now consolidating. There may be a pull back in prices over a strengthening U.S dollar, but the rebounds since mid-December show that the sentiments for precious metals, especially gold, has turned more bullish. Once again the yellow metal has found place in an investor’s kitty and these commodities are back in vogue again.

Last week we saw gold prices rising during Asian trading hours on Thursday, 11th Jan after the dollar continued to drift lower following news that Chinese officials have recommend the country slow or halt its purchase of US bonds.

The yellow metal benefited for reasons more than one over the past week and its effect continued to spread in the current week too.

• The important data that weighed on the dollar and other global news that benefited the yellow metal-
• The December produce price index fell 0.1% against an expected increase of 0;2%
• Unemployment claims rose to 261,000 in the past week marking the 4th consecutive weekly increase and a more than three month high.
• The dollar remained soft after important news was released from China regarding US bind purchase on Thursday. This kept the dollar on the defensive which ultimately benefited the yellow metal.
• Hawkish language contained in the ECD December meeting minutes pushed gold prices further on Friday
• What added to the rally was a soft US data that released on Friday. This weighed on the dollar and pushed gold prices higher.
• A disappointing US data further raised negative sentiment for the dollar. The weak dollar amidst increased demand for equity market hedge has made the environment even more glitter for the shining metal.
• Adding a touch of bullishness to gold was data from the U.S. Commodity Futures Trading Commission on Friday, which showed hedge funds and money managers raised their net long positions in COMEX gold and silver in the week to Jan. 9.
• U.S. President Donald Trump on Friday delivered an ultimatum to European signatories of the deal to fix the “terrible flaws” in the agreement with Iran, or the United States would pull out.
• Iran’s president said on Sunday the United States had failed to undermine a nuclear deal between Tehran and major powers, and hailed the accord as a “long-lasting victory” for Iran, state television reported

A weaker U.S. currency makes dollar-denominated assets such as gold cheaper for holders of other currencies, while higher rates could dent demand for non-interest-paying gold.

The global spill over effect was seen in the domestic markets too. In the national capital, gold of 99.9% and 99.5% purity advanced by Rs100 each to Rs30,750 and Rs30,600 per 10 grams, respectively — levels last seen on 18 November.
 Apart from positive global cues, buoyed by a slump in the dollar, sustained buying by local jewellers at the domestic spot market kept gold prices elevated

Summing it up, gold has moved up sharply in dollar terms in the past few days despite mixed economic data out of the USA. So gold investors should treat the latest rise in the gold price purely as a wealth protection exercise.  That is what gold is good at over time.  If the dollar declines further then gold will rise further, as will all the major precious metals – and most other commodities too.

Glitter metal gives Bright performance

2018 has definitely given gold the good launch platform. This year, gold began with its highest opening price for a calendar year. This opening has been its highest in the past 5 years after rising by around 13 per cent last year.

Last year, gold managed to close above $1300 an ounce and has been seen hovering on the range. In the currency year too gold reached its highest level since it opened on Jan 1st.

This marks only the fourth time ever that gold has opened the year above $1,300 an ounce.
The main reason for this bright performance of the glittering metal can be accrued to a weak US dollar which fell by 10% last year against a basket of major traded currencies – the worst yearly performance since 2003.

In large part, the performance of gold, and indeed the performance of many dollar-denominated asset prices have been justified by the dollars weak performance.

The US dollar weakened across the board after the release of the US employment report and pushed gold to the upside. The metal rose $6 in a few seconds, from $1316/oz to $1323 to test daily highs. It failed to break higher but it was holding near that area and also close to Thursdays high of $1326.

Before the report realised gold was trading in a negative territory, pulling back from the monthly high that it had attained. But once the U.S. data was released gold rebounded as it found support at $1315.

According to the Labour Department,
• The US economy added 148K jobs in December, below the 190K estimated by market analysts.
• Average earnings rose 0.3% (as expected)
• While the unemployment rate remained at 4.1% (17-year low).


A few minutes after the report the greenback recovered most of its losses. Despite being below expectoration the data continue to signal a strong labour market and it did not alter significantly Fed rate hike expectations.

As we have already discussed this before that Gold started out 2018 strongly, drawing support from a soft U.S. dollar. But the demand for the yellow metal in the Asian markets hasn’t picked up well. 

Spot metal hit a high of $1,321.45 an ounce overnight, its strongest level since mid-September, before easing back slightly.

Signs of seasonal Asian buying are yet to be seen in any meaningful way, which does make it difficult to chase this move higher, although we do expect this to begin filtering in over the next week or so.

We all know that gold has always proved to be a safe haven asset in times of uncertainties and has also been one the highest return generating asset in its class. And the same is expected to continue, keeping in mind gold's past years performance and current year’s opening.