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 Is Still Very Reactive to Daily News

The increase in the price of gold is not only limited to US dollar; it is pretty much the same in virtually all major currencies in the world, Recently Indian Government has decided to increase import duty on gold. Our Managing Director- Prithviraj Kothari has advised the market to wait for more stability. There are quite a few reasons why the gold bull market might indeed have returned and that the latest price action is not just bubble.

Gold traders limited the range view before the testimony and were eyeing on $1390-$1392 once again as a final support.

Gold spent most of the week under $1,400 even though China added 10 tonnes to its reserves and Poland reported a large acquisition of 100 tonnes.

Wednesday gold moved decisively up to $1,426 on the back of Federal Reserve chair Jerome Powell's dovish comments at his semi-annual monetary policy testimony but then moderated with US inflation coming in above expectations overnight, although it has held above $1,400.

Spot gold rose 1.5% on Wednesday after Fed Chair Jerome Powell’s dovish remarks, where he confirmed the U.S. economy was still under threat from disappointing factory activity, tame inflation and a simmering trade war, and said the Fed stood ready to “act as appropriate.”

This statement weighed on the dollar. The U.S. currency against major other currencies extended declines for a second session.

All eyes were focussed on Powell over the past week as he presented his key semi annual monetary policy before the congress. What needs to be remembered is that it was a two-day testimony and maybe the last key event before locking the 28th- 29th July verdict. The extent of dovishness depended on change of words that he put on soon after the strong US payrolls.

On the second day of the testimony, Powell almost reassured that he is not changing the stance of June (which was dovish and rate cut prone) as he sees lot of headwind and slowdown especially the trade war-related tensions that are affecting the global growth. Morgan Stanley however thinks that the Fed will cut 0.5% on 25th July.

Gold prices fell on Thursday, erasing gains made early in the day after stronger-than-expected consumer inflation in the United States cast doubts whether the U.S. central bank will cut interest rates as aggressively as expected.

Spot gold dipped 0.85% to $1,406.8 per ounce, dropping nearly $6 after U.S. consumer prices demonstrated a pick-up in underlying inflation, increasing in June by the most in nearly 1-1/2 years.

The core U.S. consumer price index, excluding food and energy, rose 0.3% in June, data showed on Thursday, the largest increase since January 2018. The U.S. Federal Reserve had last month downgraded its inflation projection for the year to 1.5% from the 1.8% projected in March.

Bullion rates were quick to slump following the data, shedding nearly 1% in the latter part of its session, with the dollar erasing some losses.

Gold prices inched higher on Friday as investors shrugged off concerns that stronger-than-expected consumer inflation in the United States could influence the U.S. central bank’s decision on aggressive monetary policy easing.

Spot gold rose 0.3% to $1,407.31 per ounce as during trading sessions, having touched $1,412.20 earlier in the session.

Fed policymakers are scheduled to meet on July 30-31, where investors will look for further cues on monetary policy easing. Nonetheless, gold remains a valuable asset amid rising geopolitical tension, growing macro uncertainty and a maturing economic cycle. The market expects synchronous rate cuts globally, which will make non-yielding gold attractive for investors.

Gold is still very reactive to daily news but it is forming a trading channel of $1,380 to $1,440 and the longer this continues the better - the market needs to consolidate before attempting another leg higher, which we feel is the more likely outcome than it breaking back down.