A Favourable Environment Has Emerged For Gold

US China trade war that gathered lot of limelight last week, seems to be put on a back burner as China said that they will not sign any further deals unless another round of talks happen,. There was a renewed volatility when China issued this statement and DOW fell along.

Gold prices edged higher on Thursday after the European Union and U.K. reached a preliminary Brexit deal, with worries that a deal may not pass a weekend vote in the British parliament and signs of a weakness in the U.S. economy providing support for the haven metal.

Gold’s gains after an initial small sell off suggest that many market participants remain sceptical of this latest Brexit.

Gold has benefited from new safe-haven flows. It hasn’t taken much to push investors back into gold; the latest move was triggered after disappointing retail sales numbers for September.

Investors digested a batch of mostly weaker-than-expected U.S. data, which could cement expectations for interest-rate cuts from the Fed.

• The Philadelphia Fed said its gauge of business activity fell to 5.6 in October from 12 in September
• Economists polled by Econoday expecting a 7.1 reading and a report on industrial production from the Federal Reserve fell 0.4% in September, marking the biggest drop since April.
• Data showed that U.S. housing starts slid to an annual rate of 1.26 million last month from a revised 1.39 million in August
• Initial weekly jobless claims increased by 4,000 to 214,000.

According to some analysts, the disappointing economic data continues to support market expectations that the Federal Reserve will cut interest rates at the end of the month.

According to an unofficial poll conducted with the LBMA delegates, they see gold prices rising to $1658 an ounce, up nearly 11% from current prices.

The LBMA forecast has garnered more attention lately, as their last years forecast has also proved to be fairly accurate.

Last year the conference poll attendees saw gold prices rising to $1532 an ounce.  The bullish outlook came at a t time when gold prices were struggling to hold support above $1200 an ounce. Earlier this summer, expectations of looser monetary policy and rising recession fears helped to rally gold prices more than 20 % for the year, with prices hitting a six year high above $1560 an ounce.

According to reports, this is only the second time in last 10 years that gold has seen a 20% rally. Although prices are off their highs, the gold market is still holding on to a 16% gain for the year.

The signs of a favourable environment for the commodity emerged late last year and have continued to build throughout 2019. Our original thesis is now playing out; we continue to see slowing global growth, a more dovish Fed and real rates below 2% driving demand for the commodity and causing a decoupling in the negative relationship between gold and the U.S. dollar.

Prithviraj Kothari is author of this article. Find more information about Prithviraj kothari.