Uncertainty High, Gold High

Gold prices have surged this month, passing $1,400 an ounce for the first time since 2013.
Gold is headed for its best week in three years with it set to close near $1,400 per ounce.
Sentiments in markets are bullish and it’s quite simple to state the reasons for the same.

Everything from dovish central banks, technical indicators, negative-yielding bonds and fears of a military strike between the US and Iran are all working in favour of higher bullion prices.

The best performing metal over the past 15 days was gold, up 4.26%. Initially gold traders and analysts were quite neutral on their price outlook for gold. They thought gold will remain more or less stabilised until it hit a five-year high this week and broke above $1,400 per ounce. Bullion got a huge boost after the Federal Reserve kept interested rates unchanged on Wednesday and signalled a readiness to cut rates due to increased economic uncertainties.

Another reason why gold is back in the limelight is that investors are seeking havens amid slowing global growth due to the fallout from the U.S.-China trade dispute. Furthermore, central banks are globally adopting a more dovish tone.

Last week on Wednesday, the Fed left its key rate unchanged and it dropped a reference to being “patient” on borrowing costs and forecast a larger miss of their 2% inflation target this year. The greenback weakened to erase its 2019 gains while the yellow metal strengthened.
In the past week alone the price shot up almost 10 per cent, to $US1408.80 an ounce, with the depreciation of the Australian dollar pushing the price in local currency terms to record levels above $2000 an ounce.
The movement in the past week points to one of the factors driving the price. The 9.8 per cent spike appears to have been a direct response to last week’s US Federal Reserve Board’s meeting, which signalled likely cuts to US official interest rates later this year.

Gold prices rallied to six-year highs last week and continued posting gains on Monday at $1,403 per ounce. In the move to reduce its dependence on the dollar, China has been piling up its reserves, which has added to the precious metal’s resurgence.

The People’s Bank of China has purchased more than 70 tons of gold since December, according to the World Gold Council (WGC). Before that, the Chinese central bank had not reported an increase in gold reserves for more than two years, and the official figures remained unchanged from October 2016 to November 2018.

In fact, it’s not just China. Central banks generally have been diversifying their reserves away from US Treasuries. According to the World Gold Council, they bought 145.5 tonnes of gold in the first quarter of this year, the most since 2013
Central banks continue to show their love for gold. Kazakhstan raised its gold holdings to 11.93 million ounces in May, up from 11.79 million ounces in April. Russia’s climbed from 70.2 million ounces to 70.42 in May. Turkey was also up to 16.03 million ounces in May from 15.99 in April. Additionally, Turkey saw it's gold reserves rise $167 million this week from the previous week to now total $21.7 million worth of reserves, according to central bank data.

President Trump might be starting a currency “war,” in addition to the ongoing trade war. After the European Central Bank (ECB) announced it was prepared to cut interest rates further below zero, Trump published a series of tweets accusing the bank of unfair competition. Trump has spoken of reigning in the dollar, which would likely be positive for the price of gold, as the two have historically had an inverse relationship.

President Trump’s threat to put tariffs on Mexican imports led to the gold price jumping in June. By linking tariffs to non-trade issues, Trump has increased the range of issues that could be complicated with tariffs and hence raised the level of uncertainty. Although the threat of tariffs lasted for only a week, gold held on to its gains.

The world’s two largest economies US and China have been involved in a trade conflict since March 2018. In the latest escalation, the US increased tariffs to 25% on $200 billion worth of Chinese goods. China, in response, introduced duties of 25% on 5,000 US products worth $60 billion.

The US-China trade dispute is ongoing and the US is holding trade talks with Japan and the EU this year. In addition, the UK still has to leave the EU, so economic uncertainty looks likely to remain high, giving investors several reasons to look to gold as a safe haven.

Gold expected to perform well in 2019

Last fortnight gold fell near two week lows. It was heading for its biggest weekly fall in nearly four months on 28th Feb. A strengthening dollar backed by rising equities created pressure on the yellow metal. Better sentiment on the stock markets and a reluctance by the physical gold investors are weighing on its price.

The dollar favored over the Jobs data and Gross Domestic Product news. This resulted in some long liquidation. The dollar, which gained impetus from better than expected fourth quarter U.S. GDP data, hit a 10-week high against the yen.

Rallies in the dollar were taking their toll on gold much more than they were a few weeks ago which is a clear sign that sentiment towards the yellow metal has shifted.

Just when the sentiment towards the yellow metal shifted, gold prices soared in the past week.  Gold prices soared to their highest level in 10 months on Tuesday, driven by technical buying, dovish central bank commentary and continuing uncertainty as the end of the 90-day trade truce between the U.S. and China draws near.

Just when investors became pessimistic about gold, some developments in the trade war resulted in the yellow metal hovering to its 10 month high on Wednesday mainly due to Fed comments and Equities.

Fed - Looking beyond the dollar’s relationship with gold, the yellow metals prices have been boosted by Fed commentary recently. The markets in general reacted favorably to the dovish tilt adopted by the Fed following its December rate hike.

Equity - Stocks were still climbing on Tuesday with key indices like the S&P 500 and Dow Jones Industrial Average on a steady upward march since the beginning of the year. However, both indices started to struggle early Wednesday as investors awaited the latest commentary from the Federal Reserve.

Gold found further support from job numbers released in Friday.

On Friday, prices got a jolt after a report showed that US hiring last month was the weakest in more than a year. The news helped gold push back above US$1,300 an ounce amid renewed demand for a haven.

Spot gold later settled at US$1,298.30 an ounce, down 1.14 percent for the week.
Gold has been caught in a tug of war. Four straight months of price gains amid economic hand-wringing gave way to losses last month as the US dollar gained traction.

The two main factors that are expected to influence gold in the months to come-

Dollar - Despite the recent strength in the dollar, the U.S. currency is expected to weaken “noticeably.” When that finally does happen, it should boost gold prices further—if the usual negative correlation between the two assets returns. They believe “a fair amount” of the greenback’s length has been removed but still see it as “structurally overvalued.”

Central Bank buying - central banks, especially Russia and China, have boosted the share of gold in their foreign reserves. Other analysts have also pointed out this same thing recently. The World Gold Council estimated a 74% year-over-year increase in this “official sector demand” in 2018.

Short term factors like US economic numbers and long term including a more dovish U.S. Fed, U.S.-China trade war, Brexit, Italian recession, fear of global economic slowdown, equity volatility, and increased central-bank buying are expected to push gold higher and help it   perform well in 2019.

Go for Gold

Past 6 months have been really great for gold. Gold prices have surged 14% since late August, when the Nasdaq Composite Index last hit a fresh record, and stand at their highest level since last April (* source- the Journal).

Gold has been influenced lately by many factors clubbed together. All these combined, have been pushing gold prices higher despite last years Fed rate hike, so it’s clear that gold is not dependent on just one factor for its price movement. Though US plays an important role in influencing gold prices, currently there are many other factors that need to be considered where gold prices are concerned.

World economies - The recent increase in gold price is in fact a proof that the slowdown has already started. Interestingly though, the increase is not the result of investors seeking a safe haven in a year that seems financially and economically awkward. That is, there are low interest rates in developed economies, higher rates in developing and emerging ones, and hence relatively higher risks of investments. In addition to the above, an increasingly protectionist trend could undermine the flow of global trade and negatively impact countries with economies highly dependent on international trade for their diversification.

Safe haven - Gold prices have climbed as investors uncertain about global growth outlook hedge their portfolios. Amid global political and economic uncertainty, the precious metal has become a compelling choice for money managers seeking to hedge their portfolios at a time of anxiety over economic growth and trade conflicts between the U.S. and its partners.

Central bank buying - In a report by the “Financial Times”, China purchased gold in late 2018, while its last purchase was more than two years ago. Poland, which hasn’t purchased gold since 1998, has lately added to its gold reserves. According to the same report, countries through their central banks have increased their gold purchases by “almost 75 per cent” in 2018. An increase in demand leads to an increase in prices too.

China, the top gold producer and consumer, is beefing up holdings amid signs of slowing growth and uncertainty about whether the trade fight with the U.S. will get resolved.

US trade war - Though the severity of the trade war is hanging loose, but any progress in this regards immediately affects gold. Trump said on Sunday he would delay an increase in tariffs on Chinese goods that had been scheduled for later this week, citing “substantial progress” in Sino-US trade talks over the weekend, and that he and his Chinese counterpart would meet to seal a deal if progress continued. This statement weakened the dollar against the Yuan.

The offshore Yuan strengthened 0.6 per cent to 6.673 Yuan against the dollar, after hitting its highest level since mid-July, on the news that Trump might not raise tariffs on $200 billion of Chinese imports to 25 per cent from 10 per cent.

As we all know that gold and dollar are inversely related and hence any weakness in the green back pushes the metal prices up.

But what’s interesting to see that annually gold has not generated returns yet, but it still seems to be investors favorite especially when they done know where to park their cash. This favouritism comes amidst the fact there bank deposits are no longer financially viable and other assets in its class aren’t giving that safe haven appeal. 

As a result, the alternative is to go for gold and settle for capital return, an increase in gold price which needs to be high enough to exceed inflation plus profit to make purchasing and holding it worthwhile. The trend in gold price seems to be headed upwards, and it may be a good time to get in, even if the best time to get in was when it was at $1,200 an ounce level.

Gold prices, though hinting at a looming bearish correction on risk-on market sentiments, will remain firmly supported on rising economic uncertainties and heightened geopolitical risks in 2019. Therefore, in light of low interest rates and a lack of clarity with regard to the world’s economic prospects, the gold price is expected to continue climbing. As it does, it may not stop at the $2,000 per ounce level realized two years post the 2008 financial crisis, but possibly higher.

A similar trend was witnessed post the increase in 1971, except that in every cycle, previous records for the highest gold price reached are usually broken. Not only that, the time elapsed between one cycle and the next is getting shorter.

Gold restores faith

The uptrend has once again moved into gold’s life. Gold leaped towards $1365 and the highs of almost a year ago. From the last two quarters of 2018 till date, gold has been climbing up the staircase, leaping higher, then consolidating and then moving up once more.

The middle two quarters of 2018 were bad for gold because the dollar was extraordinarily strong, so was the domestic equity market in the U.S. The influence of all that tended to wane in December, so gold picked up very, very nicely

A weaker U.S. dollar pushed gold up to 10-month highs on Tuesday, with April gold futures last trading at $1,339.70 an ounce, up 1.32% on the day.

With both the dollar and yen sliding, most notably after the BOJ's Kuroda told parliament the Japanese central bank can and will ease far more if necessary, it is perhaps not surprising that gold has surged higher, rising above $1,341/ounce, up over $140 from the early November levels when it was trading in the low-$1,200s, and the highest price since April 2018.

The recent rise in gold prices reflects solid demand from investors and, given that there is a relatively thin supply pipeline of metal between miner, refiner and trader, this is leading to a shortage of physical gold. Gold demand rose in 2018 and, although the US dollar gold price was down 1% over the year, it outperformed many other financial assets. Worries about a slowdown in global growth, heightened geopolitical tensions, and financial market volatility saw central bank demand hit its highest level since.

It is a matter of some speculation, but this story echoes reports that physical gold demand by Central Banks are at the highest since 1967, while institutional gold ETF off take hit an unprecedented 145 tonnes in December and January

Central banks added 651.5t to official gold reserves in 2018, up 74% on 2017 and the second highest yearly total on record. Net purchases jumped to their highest level since the end of US dollar convertibility into gold in 1971, as a greater pool of central banks turned to gold as a diversifier.

Most people are expecting gold to do well this year as gold has restored everyone’s faith in the market.

Gold preserves your wealth

In 2018, gold fought against significant demand for traditional stock and mutual fund investments and weathered tremendous exchange-traded-fund outflows. Gold has been under pressure from a stable and slightly appreciating U.S. dollar. Still, gold has shown incredible resilience all year – especially through the first three quarters.

It rallied at year-end, suggesting a flat or slightly positive trend year over year. Much of this is due to the increase in central bank buying from countries like Russia, China, Turkey, Kazakhstan, Poland and others. It’s all part of a larger move to reduce U.S. dollar reserves in favour of gold.

In 2019, it looked as if gold was cashing on the struggle that it faced in the previous year. Gold prices have risen more than 12% since touching more than 1-1/2-year lows in mid-August, mostly on expectations of a pause in Federal Reserve rate hikes.  Investors have shifted their sentiments from bearish to bullish for the yellow metals over more than one reason-

Data - Soft data released from important economies has created a favourable situation for gold.  Gold and the U.S. dollar, both considered as safe-haven assets these days, gained on Friday in Asia following the release of weak U.S. retail sales and China inflation data.
The precious metal attracted some safe-haven bids last week after the Commerce Department reported U.S. retail sales tumbled 1.2% in December. Economists had forecast a gain of 0.1% for the period.

In Asia, China’s January Consumer Price Index (CPI) and Producer Price Index (PPI) both missed expectations, the National Bureau of Statistics reported on Friday, furthering dampening investor sentiment.

Elsewhere, reports that China and the U.S. have not been making much progress during trade talks this week also supported the yellow metal

Volatility - First, the increased volatility in international markets due to global and economic instabilities will foment the safe haven flows that began in 2018. And gold has a historical record of being a safe haven asset in times of uncertainties thus raised demand for the yellow metal and further pushing its prices.

Fed Rates - Lower rates are disadvantageous to interest-bearing assets such as the dollar, but work in favour of commodities like gold that offer a store of value to investors.

Alternate modes of investment - Alternative assets competing for your investment dollars are not expected to perform well in the coming year. The stock market should continue its descent, either with or without a last hoorah. Interest rates should stabilize in the coming year, so term deposits will continue to generate no real return. Bonds will not be attractive compared with gold.

Central bank buying - time and again central banks have been piling their reserves to reduce their dependency in the US dollar. This once again opens a green window for gold.

Gold’s characteristics - Gold may not give you income but it definitely preserves your wealth. It’s like taking insurance for your finances. And it is expected to play this role to its best in the following months,
Finally, unlike Most investors are waiting to see whether the anticipated rise in gold prices is for real. For them, a breach to the upside of $1,350 per ounce may not be enough. Most will look for confirmation of the breakout above $1,400 an ounce.

 In each of the last three years, gold has gotten off to a strong start only to fizzle as the year moved along.  A good many investors, fund managers and analysts think that 2019 might very well be the year when gold breaks the restraints and pushes to higher ground.

Our own view is that gold is due for a rise and most portents are favourable, but the yellow metal is pretty unpredictable in its price pattern.  Overall it serves as a good wealth protector and as catastrophe insurance.  We are not of the ilk predicting a rapid rise to $10,000 - it may get there eventually but probably not in many of our lifetimes.  However there’s enough geopolitical uncertainty around to carry the price back into the $1,400s this year should some of the more worrying scenarios come about.

Gold looks moderately bullish

This week is all about the much awaited FOMC meet. The Federal Open Market Committee meets between Jan. 29 and Jan. 30, and Chairman Jerome Powell is widely expected to acknowledge growing risks to the U.S. economy as global momentum weakens.

Speculations prevailed in the market that the Federal Reserve will keep its interest rates unchanged during its two-day policy meet. This led to a spike in gold prices, nearing a seven month high during the day. But later gold steadied.

Gold has a tendency to appreciate on expectations of lower interest rates, which reduce the opportunity cost of holding non-yielding bullion.

Currently, the European Central Bank is seeing downside risks to the economy. ECB President Mario Draghi warned last week that a dip in the euro zone’s economy could be more pronounced, comments seen as signalling a delay in the bank’s first interest rate hike.
Amongst this scenario gold is portraying a strong chance of solid upward movement.

Furthermore, the US Fed is also expected to be more accommodative. The Fed has already raised its interest rates four times last year. It has even given hints that it might life borrowing costs twice in 2019.  Analysts noted that Federal Reserve policymakers recently lowered their forecasts for 2019 from three rate increases to two. This should support gold.

This uncertainty is bringing about a rally in gold prices. Moreover, global equities, particularly Asian stocks rose higher, as Wall Street rallied after a deal was announced to reopen the U.S. government following a prolonged shutdown that had shaken investor sentiment.

There were great concerns over a slowing global economic growth and this shutdown has only increased the worries of the market. Not forgetting, the, signs of stress in corporate earnings and a still unresolved Sino-U.S. trade war.

Meanwhile we also expect a rise in demand for gold, especially in Asia. Usually gold is bought in Asian countries for weddings, occasions etc. But lately gold is being purchased for investment purposes. Investment demand for gold rises with an increase in wealth. In recent years, both China and India have rapid increase in the demand for gold, especially China. These countries have been active drivers of holding the metal in its physical form.

With regard to preservation of wealth, gold has an immensely long track record; providing a hedge against inflation, geopolitical risks, natural disasters and other crises. Currently private banks and wealth advisers might typically advise their HNW clients to hold about 3-5% gold in their investment portfolios. While an ETF provides gold exposure and is an excellent tool for short-term trading, physical gold is preferable for medium to long-term investment as it is highly liquid, lacks counterparty risk and affords investors more flexibility. Unlike property or stock funds, physical gold is a highly efficient wealth management tool for estate planning

Since gold has long been used as a safe haven asset the outlook for the yellow metal looks moderately bullish now.

The main trigger for sustained higher gold prices comes in the form of a gradual asset rotation from equities and other risky assets into bonds and safe-haven assets such as gold, as mainstream investors seek protection from market turbulences, potential recessions and growing bearish sentiment.

Moreover, the downside is somewhat limited, with current gold prices representing a floor, as bearish drivers are lacking, fundamentals are neutral and costs for the most expensive producers are close to current prices.

Think Positive

Whenever gold tries to move up, the market starts doubting its behaviour. The gold price did manage to end the past week above $1200 mark.

Gold prices rose on Friday following a monthly U.S. employment report falling to its lowest level in a year.

Spot gold rose 0.3 percent at $1,202.40 an ounce. It had gained 0.6 percent so far for the week, on track to mark its biggest weekly gain in six.

Data coming in from the US was responsible for this positive trend in the yellow metal-

• Non farm payrolls rose just 134,000, well below Refinitiv estimates of 185,000 and the worst performance since September 2017 when a labor strike weighed on the numbers.

• The unemployment rate fell two-tenths of a percentage point to 3.7 percent, the lowest since December 1969 and one-tenth of a percentage point below expectations.

• Augusts’ initial count was revised up dramatically, from 201,000 to 270,000, while July's numbers came up as well, from 147,000 to 165,000.
• 
  
• The revisions bring the three-month average growth to 190,000 while the 12-month average gain is 201,000.

But the question once again was how far will it stay here? Will it move forward or once again it will turn down to its low of $1183?

Despite the weekly gain, gold prices have fallen more than 12 percent from a peak in April largely due to strength in the dollar, which has benefited from a vibrant U.S. economy, rising U.S. interest rates and fears of a global trade war.

The fear is that the rising dollar is going to cause a huge rout in the emerging markets and investors want to hedge that risk

Recently gold has been hovering between $1190 and $1210, not being able to cross these marks – neither upside nor downside.

The reason being- if there are 2 drivers for gold prices then on the other hand you would find 4 more factors are that ready to pull it down.
Currently some short term influencers are making it difficult for gold to amend its behaviors.

One of the strongest influencers for gold as of now is the US dollar and the US economy which are totally relative to each other.

Dollar has remained strong for quite some time. The US economy is also believed to be moving gradually on a positive growth path, which has further initiated the Fed to raise its interest rates in December. Moreover, it’s expected to bring in few more hikes in 2019 too.

What further raises interest is that the current trade war between US and Chine is acting positive for the US economy?

There has also been some settlement in terms of the rehashing of NAFTA as the USMCA (U.S., Mexico, and Canada Agreement which promises trade stability between the three North American nations, although when the small print is examined in detail it may leave the participants unhappy with the likely outcome.

Gold ETF saw huge withdrawals and equities markets displayed new records. All these clubbed together has been a big reason behind gold’s current behaviors. Even in this wary situation, some players are still holding positive sentiments for gold.

And one of the main reasons for this is central banks. Central banks across the world are hoarding gold amid growing fears about global volatility and a possible downturn for financial markets.
They have snapped up almost 275 tons of gold this year alone – 8 per cent ahead of 2017 – at a cost of more than £13 billion.

Many national banks have been returning to the market for the first time in years. India bought eight tons, its first purchase since 2009

Furthermore, if funds start moving back to the ETFs that would be a good sign that we could be at a turning point.

Gold believers have a strong faith in this safe haven asset and are waiting for it to rise in the long term as there are many positive things waiting to occur which will create a constructive impact on the yellow metal.

• U.S. total debt and monthly deficit seems to be accelerating
• Central bank gold buying appears to be increasing;
• The dollar may be in the process of being downgraded as the world’s reserve
• And precious metals demand appears to be rising in the key Asian and Middle Eastern markets

So gold is being pulled between the bears and the bulls of the short term and long term futures.

Much of the volatility will depend on the dollar and in case the dollar starts losing its global presence then gold price in the dollar terms is expected to rise,

Not forgetting the other geopolitical factors. Gold investors are very much positive for gold in the long run and believe that though it will hover around the $1200 mark for the time being, but will soon rise.

Gold might take time to recover

Last week, the Fed had indicated that it will pursue a tighter monetary policy. This prompted the dollar to strengthen; and it’s after effect was seen on gold. Immediately gold prices dipped.

The Fed raised U.S. interest rates last week and said it planned four more increases by the end of 2019 and another in 2020, amid steady economic growth and a strong job market.
Spot gold was down 0.5 percent at $1,186.29, as of 0748 GMT. In the previous session, gold touched it’s lowest since Aug. 17 at $1,180.34 an ounce.

Since quite some time gold has been dancing to the tunes of the dollar. Prices have remained almost dependent on the dollar and the movement has been inverse. And dollar is further dependent on the US economy which has been showing positive developments and better than expected progress.  Efforts by the Trump administration to reduce the trade deficit from an economic point of view has been friendly for the greenback as well.

Gold has fallen about 13 percent from an April high, largely because of the stronger dollar, which has been boosted by a vibrant U.S. economy and fears of a global trade war. Investors have bought the greenback instead of gold as a safe investment.

The release of the final U.S. gross domestic product for the second quarter “put downward pressure on the yellow metal. Moreover, the pace of [economic] growth was confirmed as strong in the U.S. which validated the more hawkish views within the Federal Open Market Committee (FOMC).

Last Wednesday, the Fed on lifted federal-funds rates for the third time this year, to a range between 2% and 2.25%, and signaled it was prepared to increase again in December.

The spill over effect of previous and future hikes was seen on gold at the beginning of this week too. Gold prices lowered in Monday and remised in the negative zone.

There is still a lot of downward pressure for gold before it picks momentum. The widening of interest rate differentials, and the upward trends in U.S. economic performance are weighing on gold. At least in this quarter, fundamentally it is very difficult to long gold.

But as I have mentioned in my previous blogs, is that though gold has not lived up to its safe haven image, the central banks are still piling up its reserves.

Gold, known as a "safe haven," has come to be preferred by central banks as well as individual investors since the outbreak of the global financial crisis. Central banks in the first half of this year added 193.3 tons of gold to their reserves, the highest level since 2015. With 125.8 tons of gold, Turkey was named the second country achieving the highest increase in gold reserves since early 2017.

Russia, Turkey and Kazakhstan played an important role in the purchases in question. In the first half of the year, 86 percent of total gold purchases were made by these three countries.

Rank wise standing of countries in terms of purchase of gold made-
No1. In gold - Russia
No. 2- Turkey
No.3- Kazakhstan

The reason for these piling reserves of gold is to reduce its dependency on dollar reserves. What people have understood lately that US President Donald Trump’s attitude have been disturbing global financial markets. This could worsen further. In anticipation of avoiding future problems, central banks and other countries have started increasing their gold reserves; On the other hand, the rise in geopolitical risks in the Middle East was also instrumental in increasing the demand for gold.

Furthermore future events may lead to volatility, once again a favourable zone for gold

• Trade wars
• The risk of natural disasters and
• Geo political wars
All of these might have an impact on world economies and further on gold thus raising its demand as a safe haven asset.

The time for Gold should come soon

Gold prices gained on Friday and were at weekly record gains, while the dollar also traded higher although it is still hovering near two-month lows.

The dollar fell to a nine-week low against a basket of major currencies on Thursday as investors shifted their focus from a trade row between China and the United States to the Federal Reserve’s monetary tightening plans.

Currency markets have become more settled since reacting strongly to new tariffs announced by Washington and Beijing on Tuesday.

The fall in dollar this week came as safe-haven demand for the U.S. currency ebbed amid continued relief that fresh U.S. and Chinese tariffs on reciprocal imports were less harsh than originally feared.

On Monday, the U.S. slapped tariffs of 10% on $200 billion in Chinese goods, before they rise to 25% by the end of 2018, rather than an outright 25%.
China retaliated by putting tariffs on $60 billion in U.S. goods. However, China will put a 10% tariff on some goods it had previously earmarked for a 20% levy.

Reports of the tariffs imposed by the U.S. and China on each other's goods being set at lower levels than expected were cited as headwind for the dollar prices, which is widely seen as safe-haven assets.
The dollar was also under pressure after a report said that the U.S. and Canada are unlikely to reach an agreement on NAFTA this week.

While trade disputes gained momentum, there was one more thing that has kept the markets on its toes. The next Fed meeting. Investors looked ahead to the next Federal Reserve policy decision to be announced on Sept. 26.

U.S. economic data has remained strong, and the dollar has tended to act as a safe-haven trade, gaining as tensions between Washington and Beijing escalate.

Markets currently expect the Fed to hike rates by a quarter of a point, while fed fund futures price in an additional increase at the end of the year at more than an 80% probability.

Looking ahead, markets would be paying close attention to next week’s Federal Reserve meeting. The U.S. central bank is widely expected to hike rates and discuss paths for future rate hikes. Higher rates dent demand for non-interest yielding gold and in turn boost the dollar in which it is priced.

The Federal Reserve is next week expected to raise benchmark borrowing costs and shed more light on its future rate path.

One more noteworthy thing that happened over the week was gold buying by Russian central bank.  As mentioned in my blogs earlier, the Russian central bank has been piling up its reserves and the latest figures released , stated that it has added a further 1 million ounces of gold (31.1 tonnes) to its reserves that month bringing the grand total to just over 2,000 tonnes as we suggested a month ago. It now has the holdings of Italy (2,451.8 tonnes) and France (2,436.0 tonnes in its sights to become the third largest national gold holder after the USA (8,133.5 tonnes) and Germany (3,369.9 tonnes) – all figures as reported to the IMF.

Russia and China are both believed to by buying gold as they feel the yellow metal will have an important role to play in the ongoing development of the global financial system. Russia and perhaps China too, are also believed to be buying gold, amongst other moves, to reduce their dollar-related forex holdings.

All these considerations suggest one thing- . Gold should shine not only due to the lower real interest rates and as an inflation-hedge, but also as a safe-haven asset hedging against the potential overshooting by the Fed.  We don’t expect any major financial crisis or that there won’t be a rate hike—what we think keeping these considerations in mind- the time for gold should come soon.

Gold might increase but with a lag

The yellow metal is down about 8 percent this year amid rising U.S. interest rates, trade disputes and the Turkish currency crisis, with investors parking their money in the dollar, which is being viewed as a safe-haven asset.

Firm U.S. dollar makes gold more expensive for holders of other currencies, with safe-haven demand for gold this year overshadowed by the metal’s relationship with the greenback
Gold's weakness in the international market is primarily on account of the US Federal Reserve's hawkish stance. It has hinted at four rate hikes this year and more next year. The US Fed is also shrinking its balance sheet.

On one hand the US Fed is raising rates and on the other hand central banks are doing completely opposite. This action is strengthening the dollar and hitting on gold.
An increase in rates is expected soon because the Fed believes that the US economy is strong enough to support a hike. This belief has led to an increased pressure on gold.

Following this sentiment, Gold prices edged down on Tuesday as the dollar hit a more-than-one-week high on the back of intensifying global trade tensions and economic worries in emerging markets.
Spot gold was down 0.3 percent at $1,196.90 an ounce during Tuesdays trading hours.

Many currencies world over have suffered setbacks against a strengthening dollar.

The dollar index, which measures the greenback against a basket of currencies, hit its highest since Aug. 24 at 95.410.

Now what will hold great importance for the dollar and the gold is the US economic data. Markets are closely watching the economic number, including a manufacturing survey on Tuesday and an employment report on Friday, which could influence gold’s moves this week as investors look for clues on the pace of U.S. interest rate increases.

Meanwhile, worries over an escalation in trade conflicts between the United States and other countries have kept participants in broader markets on the edge.

The threat of trade wars has only impacted currencies as of now. Analysts are expecting gold prices to start rising with a lag.

Currently we have been witnessing global economic crisis. This is making the other currencies weak and benefiting the dollar and time and again we have seen that any rise in dollar pulls down gold prices.

But if we see the domestic market, the gold dollar relationship is behaving in a very interesting manner.

Dollar and gold have an inverse relation so when the dollar strengthens, gold prices fall.

But when the dollar strengthens the rupee weakens, and a falling rupee offsets the fall in gold prices in India. So, while the price of gold may fall 7% in dollar terms, it may drop only 5% in rupee terms.
Any economic or political crisis results in an upsurge in gold prices and similar behavior as expected over the trade crisis between US and China. But it seems that gold’s rally has been totally offset by a strengthening dollar.

Analysts believe that gold could revive if the ongoing trade dispute between the US and China flares up into a full-fledged trade war. If the US economy suffers, gold would benefit from this.
Given the risks that exist today in the global economy, gold can prove to be a useful portfolio diversification tool and can help reduce overall portfolio risk.

Global inflation, rising interest rates, tightening of monetary policies by central banks, high crude prices are all positives for gold. 

As dollar strengthens, the yellow metal weakens

Spot gold was up 0.1 percent at $1,318.52 past week, not far from a low of $1,315.06 hit in the previous session, it’s weakest since March 21.

The metal was on track to finish the week down more than 1 percent for its second consecutive weekly decline and the biggest weekly drop in four.

The strength of the U.S. dollar - combined with the weakness of the euro zone currency after (ECB chief) Mario Draghi’s speech - is pushing down the yellow metal.

The dollar hit a 3-1/2-month high against a basket of currencies on higher U.S. yields while the euro was hampered by a dovish tone from the European Central Bank. On Wednesday the benchmark 10-year Treasury yield reached its highest since January 2014 at 3.035 percent. A rise in U.S. bond yields pressures gold by reducing the attractiveness of non-yielding bullion, which is priced in dollars.

Thursday’s trading started on a weak footing, but most of the metals ended the day in positive territory, which suggested dip buying and support are features of the market. Precious metals prices were little changed on Thursday morning, with gold and silver prices off by 0.1% – with the former at $1,316.54 per oz. Meanwhile, the platinum group metals were both up by 0.1%.

Gold continued losing ground through the early NA session and is currently placed at fresh 6-week lows, around the $1312-11 region.

After Friday's corrective bounce, resurgent US Dollar demand was seen as one of the key factors weighing heavily on dollar-denominated commodities - like gold at the start of a new trading week.  Gold prices retraced upward in what looked like a correction after higher and sent the yellow metal to a one-month low.

Easing geopolitical concerns and the strengthening dollar index are the factors which are creating the sell-off. This rise in the dollar seems to be weighing on gold and is likely to be a headwind for metals’ prices generally.

Recent increases in geopolitical tensions and rising commodity prices, especially oil, seem to have spurred inflationary concerns that have led to stronger bond yields and in turn that has lifted the US dollar, with the dollar index at 90.97. This has broken above the previous peak at 90.94 from March 01.

At their summit on Friday, North Korean leader Kim Jong Un  and South Korean President Moon Jae-in declared they would take steps to formally end the 1950-53 Korean War, which ended only with a truce, and work towards the "denuclearisation" of the Korean peninsula.           

North Korean leader Kim Jong Un and South Korean President Moon Jae-in on Friday declared they would take steps to formally end the 1950-53 Korean War, which ended only with a truce, and work towards the “denuclearisation” of the Korean peninsula.

The signs of detente in the North Korean conflict are ... contributing to the lack of solid demand for gold as a safe haven at present

Further as tensions o the Korean peninsula eased, the European shares rose after a positive session among Asian stocks overnight. The dollar index rose 0.2 percent on Monday, 30th April, holding just below its strongest since mid-January.

Gold fell at the start of this week, pulling back towards last week's more than one-month low as easing tensions on the Korean peninsula boosted appetite for assets seen as higher risk, such as stocks, and lifted the dollar.
   
The metal slid 1 percent last week on the back of a stronger dollar and a rise in Treasury yields to above 3 percent, which weighed on interest in non-interest bearing assets. On Thursday, it hit its lowest since March 21 at $1,315.06 an ounce.

That has left it on track to end April down 0.5 percent, erasing all the previous month's gains.
Spot gold was down 0.4 percent at $1,316.15 an ounce during trading hours.
   
Meanwhile, the Fed’s favoured PCE inflation gauge is expected to put core price growth at a 13-month high of 1.9 percent.

The latter would put the Fed within a hair of at least ostensibly meeting its dual objectives. Policymakers aim for inflation of 2 percent to be sustained in the medium term – abating the significance of a single month’s reading – but another sign of steady progress may reinforce the case for tightening.

Gold may return to suspicion, if this materializes as the prospect of higher rates sustains the US Dollar, undercutting demand for non-interest-bearing and anti-fiat assets.