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.