Dovish Fed Comments positive for Gold

It’s quite strange that 10 days back the key influential factor that pulled gold prices down was responsible for the rise in gold prices in the past 5 days. Yes rate hike!!!!.

The precious jobs reports brought mixed sentiments for gold traders as there wasn’t really anything in this number which was going to put the brakes or fasten an interest rate hike.

But what played positive for gold was the statement realized by Fed Chairman, Janet Yellen post the data released on Friday.

The surge in gold prices came after a Friday report on consumer prices showed that inflation in June came in flat, a sign that consumer prices had trouble sustaining its upward momentum. A weaker-than-expected reading for June’s retail sales, which fell 0.2%, also signal led weakness. Economists polled by Market Watch had forecast a 0.1% increase. Market participants said the lack of spending from U.S. shoppers made it difficult to envision inflation approaching the Fed’s 2% target.

Gold prices on Friday marked the highest finish of the month and their first weekly rise since early June, as data on retail sales and inflation stoked concerns that the pace of economic growth may not merit lifting U.S. interest rates again in 2017.

U.S. consumer prices were unchanged in June and retail sales fell for a second straight month, pointing to tame inflation and soft domestic demand that diminished prospects of a third interest rate increase from the Federal Reserve this year.

The U.S. data bolstered expectations that the U.S. Federal Reserve would likely to move slowly to continue raising interest rates in the absence of inflation signs. Some had been expecting another rate hike in 2017, however Fed Chair Janet Yellen's comments to the U.S. Congress this week was more dovish than originally anticipated.

Activity was muted ahead of a speech by US Federal Reserve Chair Janet Yellen later in the day which could give clues on the Fed's attitude towards inflation, and on when the US central bank will start reducing its $4.5-trillion balance sheet. That would likely push up bond yields, boosting the opportunity cost of holding bullion, and pushing gold lower.

But, in a testimony to the Congress, Federal Reserve Chairman Janet Yellen had signal led a gradual approach to future rate hikes, which pushed down the dollar and boosted the appeal of the precious metal.

The disappointing U.S. retail sales and inflation data has now seen the odds of another rate hike fall below 50% this year which  has further boosted the appeal of low- and non interest-bearing assets on a relative basis, hence the  market witnessed  breakdown in [the U.S. dollar/Japanese yen] and breakout in gold.

The latest economic data may be viewed as providing insufficient support for the Fed to lift interest rates at least once more in 2017 and shrink its $4.5 trillion balance sheet—an act that can also serve to lift rates and tighten economic conditions.

The next big thing for traders is the upcoming ECB monetary policy  meeting to be held on July 20 in Frankfurt and that certainly has an ability to bring another episode of taper tantrum. 

Gold likely to be embraced as a Safe Haven

Gold prices have been steadily on decline since early June when the metal traded just shy of $1,300 an ounce.

This week too gold ended on a negative note even though the week began with a different picture.
Gold prices were lying stable at $1,225.24 per oz on Wednesday morning after a prices rise on Tuesday, closing up 0.2%.

However on Friday, gold dipped $5.60 to $1219.10 in Asia before it bounced back to $1227.00 just after morning’s jobs data was released, but it then fell to a new session low of $1207.30 in late morning New York trade and ended with a loss of 1%.  

Spot gold was down 0.7 percent to $1,215.81 per ounce by 1336 GMT, after touching an intraday low of $1,214.40, the weakest since May 9. It has dropped about 2 percent this week and is set for its biggest weekly fall since the week of May 5.

Gold hit a two-month low on Friday after stronger than expected United States jobs data increased the likelihood of another U.S. interest rate increase.

U.S. hiring picked up in June while wage gains disappointed yet again, a mix that may continue to be a puzzle for the economy and policy makers, Labor Department figures showed Friday.

While payroll gains were broad-based and boosted by the biggest jump in government jobs in almost a year, wages were below forecasts, even with the jobless rate close to the lowest since 2001.

It is quite evident from the unrelenatble hiring in June that thelabout market is resiliebt and may lead to a stronger acceleration in wages. At the same time, the month’s data could also reflect a new graduating class and the summer’s seasonal workers joining the labor force -- some likely welcomed by employers who are struggling to find workers.

The data suggested that the job market is attracting people off the sidelines, as the size of the labor force and number of unemployed people increased, indicating more people are actively looking for work. The number of people who went from out of the labor force to employed rose to 4.7 million, the highest in data going back to 1990.

While wage growth is running below the peak of previous expansions, the figures may be depressed by weak.

U.S. non-farm payrolls jumped by 222,000 jobs last month, the Labor Department said on Friday, beating expectations of a 179,000 gain.          

The data brought negative news for gold traders as there isn’t really anything in this number which is going to put the brakes on an interest rate hike.

Nevertheless, the report marks a relatively strong finish for the labor market in the second quarter that should support continued gains in consumer spending in the coming months. Federal Reserve policy makers raised interest rates last month and reiterated plans to start reducing their balance sheet and increase borrowing costs once more this year.

Recent selling has placed enormous pressure as prices broke through critical support levels.  Much of that selling was a result of a shift in market sentiment as the Federal Reserve and the European Central Bank relaxed their respective multiyear quantitative easing programs.

However, markets remain constructive for gold.The bigger picture for gold is encouraging. Despite the U.S. tightening cycle and VIX bear market, gold has recovered. It appears to be looking ahead to a beneficial endgame.

Gold certainly has a way of getting investors’ hopes up. Most recently, it neared $1,300 per ounce in early June, prompting optimism among bulls about a meaningful breakout to come. Alas, gold prices failed to push through that level, and now sit around the $1,250 mark. There are, of course, bullish and bearish arguments to be made but, on balance, gold is currently facing serious headwinds. That’s not to say, however, that there isn’t a long-term bullish case for gold. There is, but it may take years to play out. Simply put, the world is awash in too much debt, be it household, corporate or government.

According to an October 2016 report by the International Monetary Fund, gross global debt (excluding that of the financial sector) stood at $152 trillion, representing an all-time high 225% of world GDP. This overhang risks prolonged economic stagnation, if not a worse outcome. At some point, central banks will be forced to engineer higher inflation rates to lessen the burden of all this debt. Realizing this, investors can be expected to embrace gold as the ultimate safe haven.

GOLD EXPECTED TO SHINE IN THE SECOND HALF OF 2017

It was strong opening for gold this week as gold neared its highest in a month on Monday amongst holiday thinned trade. A soft dollar and a pullback in equities helped this rise in gold prices.

Gold hit its highest level since May 1 on Friday at$1,269.50 an ounce, as nervousness over U.S. President Donald Trump's negotiations with other world leaders at the G7 summit prompted investors to buy bullion as an alternative to nominally higher-risk assets such as shares.

Spot gold settled at $1,266.67 an ounce, little changed from $1,266.66 late on Friday.
Though there is not much rise expected in gold prices, but the news from G7 meeting pushed gold prices up.

Under pressure from the G7, Trump on Saturday backed a pledge to fight protectionism but refused to endorse a global accord on climate change, saying he needed more time to decide.

Apart from this, market players await next month’s FOMC meeting to get clearer picture on the U.S. Federal Reserve's stance on interest rate increases.Gold is highly sensitive to rising U.S. rates, which
Increase the opportunity cost of holding non-yielding bullion, While boosting the dollar, in which it is priced.

Meanwhile this week, market participants will stay focused on the labor market report in the US slated to release during the week. If the data turn out to be positive, there is probably nothing to prevent the (Fed) implementing its next rate hike in mid-June.

The latest FOMC minutes suggest that the Fed may start decreasing its balance sheet later this year.
It is true that the first two rounds of quantitative easing were positive for the gold market. However, the third one was a disaster for the yellow metal, as the confidence in the U.S. economy came back and the safe-haven demand for gold declined. Therefore, the impact of the unwinding of the Fed’s balance sheet on the gold market is not easy to determine – a lot will depend on the broad macroeconomic picture.

On the one hand, the Fed’s shrinking balance sheet would imply rising long-term real interest rates, which would be negative for gold prices. On the other hand, there may be some turmoil in the financial markets, which would support the gold market. Moreover, it may be the case that the U.S. dollar rally which started in 2014 was caused by the rising expectations about the Fed’s upcoming tightening.

If this is true and investors really bought the rumor and sell the fact, then the greenback may start depreciating, which would likely send the price of gold higher. Gold’s response to the current Fed’s tightening cycle suggests that it is not impossible scenario. However, the whole process is likely to be conducted in a very conservative and cautious way to minimize market volatility and disruption. Hence, investors should not bet on doom scenarios and expect that the price of gold will necessarily skyrocket.

Though gold was not preferred in an investor’s portfolio during 2016, it gold regained investor confidence during 2017, as doubts about the Trump’s administration’s ability to see through their policy agenda and political difficulties have emerged. Moreover, there has also been a number of geopolitical events such as European elections – the results in France and Netherlands have somewhat assuaged financial markets – and the flash point in the Korean peninsula.”

These geopolitical tensions and uncertainties have influenced gold prices.

The spot price of gold jumped nearly 2% on the 17th of May, the most significant daily increase since the Brexit vote on May 2016. Political developments will be closely watched by the market, and could be a potential driver of additional uplift in gold prices going forward.

Comments by St. Louis Fed President, James Bullard, that inflation remains subdued, and the Fed’s interest rate expectations might be too aggressive, have also been supportive of gold.

Gold is expected to hover around USD 1250 an ounce and is further expected to range between USD $1245 to USD $1300 over 2017-18.

Gold looks positive while uncertainties prevail

Last week gold closed on a positive note over political uncertainties in United states following the sacking of FBI chief James Comey pressured the Dollar and equities fell.

Though gold prices were down through the week, by Friday they rose for a second straight session.

The trend continued in Asia and early Europe last Friday with the dollar unable to gain an additional traction as USD/JPY hit resistance above 114.00


There were a series of data released last week that compelled gold to move in a wave like pattern-

• New applications for U.S. jobless benefits unexpectedly fell last week, while producer prices rebounded strongly in April,pointing to a tightening labor market and rising inflation that could spur the Federal Reserve to raise interest rates in June.
• The headline US retail sales data was weaker than consensus forecasts with a 0.4% monthly increase and the underlying increase was also below expectations at 0.3% compared with an expected 0.5% although the impact was offset to some extent by upward revisions to the March data.
• The consumer inflation data was also weaker than expected with a headline increase of 0.2% for the month compared with an expected 0.3% gain.
• Core prices increased 0.1% on the month with the year-on-year rate declining to 1.9% from 2.0% previously.
• The Chinese new loans data was above consensus expectation which helped underpin confidence in the short term growth outlook, although money supply growth was lower than expected.
• The combination of a weaker dollar and lower bond yields put upward pressure on gold prices with a move to above $1,230 per ounce before a correction back to just below this level.
• Gold holdings to back the giant GLD gold ETF trust fund ended Thursday unchanged at an 8-month low, but the iShares SLV silver ETF shrank by 74 tonnes – almost a whole day's global silver mining output – as shareholders liquidated their positions. 
• That took the SLV down almost 9% from last fall's near record-high holdings, then equal to more than two-fifths of annual silver mine production worldwide. 
• Federal funds futures implied traders saw about a 49 percent chance the Fed would increase rates twice by the end of 2017 shortly after the data, compared with 54 percent just before the release of the latest readings on U.S. store sales and the consumer price index, CME Group's Fed Watch programme showed.

Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion, while boosting the dollar, in which it is priced.

Continuing with previous weeks sentiments this week too gold opened on a positive note.
Gold rose as U.S. political turmoil, a missile test by North Korea and a worldwide cyber-attack fuelled demand for safe-haven assets, while weaker than expected U.S. data pushed the dollar lower, making gold cheaper for holders of other currencies.

Spot gold was up 0.4 percent at $1,233.69 an ounce during trending hours on Monday, on track for a third day of gains after hitting an eight-week low of $1,213.81 last week. U.S. gold futures gained 0.5 percent to $1,233.60.

Gold was once again set to rise over continued unpredictability of the Trump administration, North Korea flexing its muscles again and weaker U.S data.
Gold prices increased for a fourth day onTuesday as the dollar eased on signs of slower economic activityin the United States that knocked expectations of an aggressivestring of interest rate hikes by the U.S. Federal Reserve.
The New York Federal Reserve bank said on Monday its Empire State Manufacturing Activity index, a report on business activity in the state;unexpectedly fell in May, sinking intonegative territory for the first time since October.

The-weaker-than-expected report could be a harbinger a possible descent in the U.S. manufacturing sector. Expectations of a U.S. rate increase in June fell to 74 Percent compared to 84 percent last week, according to the CMEFedWatch.

Higher interest rates tend to boost the dollar and push bond yields up, putting pressure on gold prices by increasing the opportunity cost of holding non-yielding bullion.

A lift in gold prices is expected over a risk aversion sentiment due to recent global developments including the North Korean missile test, the massive"ransom ware" cyber-attack and controversies surrounding U.S.President Donald Trump