Trade War pushes gold prices high

Gold prices ended last week on a high note as prices rose on Friday over the escalating US China trade war. Gold posted a weekly rise as the United States raised tariffs on Chinese goods and increased fears of a global economic slowdown, with a weaker dollar also offering support to the precious metal.

On May 9, the US government announced that since May 10, 2019, the tariff rate imposed on the $200 billion list of goods imported from China has been increased from 10% to 25%.

The above measures by the United States have led to an escalation of Sino-US economic and trade frictions, contrary to the consensus between China and the United States on resolving trade differences through consultations, jeopardizing the interests of both sides and not meeting the general expectations of the international community.

The United States intensified a tariff war with China on Friday by hiking levies on $200 billion worth of Chinese goods amid talks to rescue a trade deal. U.S. President Donald Trump said on Friday he was in no hurry to sign a trade deal with China.
Uncertainty over the real impact on [the] U.S. economy and Chinese economy was driving gold prices higher.

Gold pieces rallied over the following-

• The levy of increased tariffs by the Trump government has increased the demand for safe haven assets like gold and bonds mainly because equities saw a sharp drop over the trade war. Rise in demand ultimately resulted in a rise in gold prices
• Another spill over effect of the trade war can be seen in the fact that the US Federal Reserved may be forced to cut interest rates which will further result in a rise in the yellow metal.
• Global anxiety has also seen an uptick as U.S. bombers arrived at a U.S. base in Qatar. The bombers have been sent to the Middle East to counter what Washington describes as threats from Iran.
• Bullion was also supported by a weaker dollar which fell after data showed a smaller-than-expected rise in the U.S. consumer price index last month.

Initially markets were expected that a trade deal will be struck between the two biggest economies of the world. However what happened over the weekends was much beyond market expectations.

A full-scale trade war between the US and China began. This war of words is closer than ever after Beijing hit back with retaliatory tariffs on Monday. The Chinese Yuan fell by more than 1%, prompting a selloff in copper, while gold jumped $11 to 1299 and Bitcoin hits $7400. USD fell across the board on reports that some Chinese scholars have mentioned Beijing taking the "nuclear option" -- selling US treasuries. Risk trades have been hit hard to start the week with safe haven assets surging.
After vowing over the weekend to "never surrender to external pressure", Beijing defied President Trump's demands that it not resort to retaliatory tariffs and announced plans to slap new levies on $60 billion in US goods.

• China Says to raise tariffs on  some US goods wef June 1
• China Says to raise tariffs on  $60B of U.S. goods
• China says to raise tariffs on  2493 U.S. goods to 25%
• China may stop purchasing US agricultural products :GLOBAL TIMES
• China may reduce Beoing orders: GLOBAL TIMES
• China additional tariffs do not include U.S. crude oil
• China raises tariff on US LNG to 25% w.e.f. June 1
• China to raise tariffs on import of  U.S. rare Earths to 25%


Here's a breakdown of how China will impose tariffs on 2,493 US goods. The new rates will take effect at the beginning of next month.
• 2,493 items to be subjected to 25% tariffs.
• 1,078 items to be subject to 20% of tariffs
• 974 items subject to 10% of tariffs
• 595 items continue to be levied at 5% tariffs


In further bad news for American farmers, China might stop purchasing agricultural products from the US, reduce its orders for Boeing planes and restrict service trade.
China's announcement of counter tariffs acted as a booster for gold prices and resulted in its rise. There have been talks in the market that the Peoples bank of China may start dumping Treasury’s. But will it also dump US stocks and real estate? Well now we get concrete reasons behind the piling of gold reserves by the biggest gold consumer of the world.

Fed Continues to be a key driver for gold and dollar

Gold has been going strong since the mark of 2019. As we completed a quarter of the current year, gold continues to show the same sentiments as the second quarter began.  Gold prices rose to a more-than-one-week peak on Monday as the dollar slipped after data showed U.S. wage growth slowed last month, while investors awaited minutes of the U.S. Federal Reserve’s March meeting later this week.
Spot gold gained 0.4 percent to $1,296.87 per ounce by 0746 GMT, after touching its highest since March 29 at $1,297.86 earlier in the week.

Let’s have a look at each factor individually : 

Data - Soft data coming in from the US strengthened the yellow metal. Though the non-farm payrolls data was better than expected, the manufacturing jobs fell which is a bad signal for the sector and doesn’t show a very bright picture of the economic outlook. Marginally better Purchasing Managers’ Index (PMI) reading out of China over the weekend, along with the never-ending optimism about a trade deal, were touted as the reasons. Cyclical outperformed and the yield curve steepened, suggesting that recession fears sparked by the prior week’s inversion were overblown. A slightly better PMI in the US added to this better mood. Contrasting with the stronger soft data were weak retail sales in the US and evidence that inventory continues to build in the channel. Auto and home sales also remain fairly weak. Friday’s labor report was definitely good news and much better than last month. However, some of the leading data from that report, like temporary hiring, continued to soften and bear watching.

DOLLAR - The dollar was down 0.1 percent against key rivals as U.S. Treasury yields extended their decline after the U.S. jobs report signalled a slowdown in wage growth even as employment accelerated from a 17-month low in March. The dollar was also weighed down by softening bond yields. The greenback was 0.3 percent lower at 111.385 yen after briefly popping up to a three-week high of 111.825 on Friday following the U.S. jobs report.

CHINESE GOLD RESERVES - According to the latest Chinese reserve data, the country's gold reserves rose to 60.62 million ounces in March from 60.26 million a month earlier, according to data on its website. This was the fourth consecutive month of gold increases: last month’s inflow was 11.2 tons, following the addition of 9.95 tons in February, 11.8 tons in January and 9.95 tons in December. The recent buying spree resumed after a 25 month hiatus, as China stopped reporting gold purchases in October 2016. This trend broke in December, when Beijing announced it had once again started accumulating gold

RUSSIAN GOLD RESERVES -  The world's isn't sitting on its hands, as governments worldwide added a whopping 651.5 tons of bullion in 2018, the second-highest total on record, according to the World Gold Council, and nobody more so than Russia which quadrupled its reserves within the span of a decade amid President Vladimir Putin’s quest to break the country’s reliance on the U.S. dollar. The one country that has decided it will no longer be part of the USD monetary sphere of influence is Russia, which has been dumping dollars and buying gold at the fastest pace in decades.


Summing up the previous week and why gold rose or dollar fell, we can say - Disappointing European manufacturing data in combination with a more “dovish” Fed led the 10-year treasury yield to fall the most in two years and U.S. investment grade bonds to rise the most in four years. The Federal Reserve left interest rates unchanged, while signalling no rate hikes for the balance of 2019, acknowledging global uncertainty and muted inflation pressures. Markets responded favourably at first, with both bonds and equities rallying on the news, but the markets gave back these gains as the focus turned to what the Fed’s pause might mean about the underlying health of the economy. The Fed will likely continue to be a key driver of equity markets as officials negotiate the balance between rates, inflation and a healthy but slower-growing economy

Market Sentiment Bullish

Generally in my blog, I have mentioned about how gold has been behaving, or the=e weekly outlook for gold etc. But in this blog I have mainly picked 4 factors that I personally believe will influence gold prices in the near future. It has been a good year for gold so far and investors believe that gold is here to stay.

A positive sentiment in the market is supported by the following factors-

Weak US dollar - We have always seen that gold is inversely related to the dollar. This relationship has proved to be fruitful strong and table for gold over a period of time. Gold has a tendency to rally when dollar weakens. Sometimes there has been strange behavior where gold and dollar both have declined together. But the situation was different at that time. It happened in an environment when US real yields rose, which depressed gold prices, while real yields elsewhere rose more than US real yields, pushing the US dollar lower. These situations are exceptional. If the US dollar weakens or strengthens in tandem with interest rate spreads than gold prices move in the opposite direction. If the US dollar weakens because of unfavorable spread movements, but US yields still move higher, gold prices will suffer versus the US dollar because gold doesn’t pay interest.

So keeping the exceptions apart, gold prices generally move opposite to the dollar. And in the near term, since dollar is expected to weaken, gold prices are expected to move higher.

Fed -When we mention dollar, we can’t forget to make note of the Fed as time and again dovish comments from Fed have influenced the dollar and furthermore the yellow metal.  The Fed to remain on hold, and other major central bank to hike less and/or later. Less hawkish central banks are a positive development for precious metal prices in general and for gold prices in particular. Moreover we expect the 10 year US Treasury yield and US 10y real yields to decline slightly. This should support gold prices.

Chinese economy - After the US, it’s the Chinese economy that stands second in influencing the yellow metal. The developments in the Chinese Yuan reflect the expectations for the Chinese economy and the US-China trade conflict.  With trade at war, China won’t sit quiet; it may continue to take some actions to strengthen its economy.these measure along with a possible US-China trade deal will support the yuan and gold prices.
Adding to it, we have seen that lately China ah been piling up its gold reserves. China is one of the leading consumers if gold and rising demand will surely push gold prices high.

Optimist sentiment - the technical picture of gold prices still looks positive. Despite the recent sharp decline in prices, prices are still above the 200-day moving average at around USD 1,250 per ounce. We are confident that prices will stay above this level. It is possible that prices drop towards this level and test it, but this would be an opportunity to position for higher gold prices. A sudden short-term rally in the US dollar or a temporary spike in 10y US Treasury yields (not our base scenario) could trigger profit taking on existing net-long gold positions. Later in the year we expect the positive momentum to build and gold prices to rally more strongly.

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.

Dollar strengthens but sentiments for gold are positive

Gold started the week on its back foot, testing the $1,300 level mid week. The metal recovered sharply ending the week essentially unchanged. A key catalyst for the recovery in the USD gold price was the revelation that that Presidents Trump and Xi will not meet to resolve trade differences prior to the imposition of increased tariffs in March. U.S. President Donald Trump said last week that he had no plans to meet with Chinese President Xi Jinping before a March 1deadline to achieve a trade deal.

We continue to see the US China trade conflict, Fed and ECB actions as key drivers of equity and USD volatility, in turn driving investors to safe haven gold.

Concerns regarding the Chinese economy, weak growth and political tension in the Euro zone, Brexit and lingering global trade tensions are weighing in on market sentiment and the dollar is once more sought after as a refuge asset.

Investors strongly believe that there is much scope for gold to rise and they cite 3 main reasons for that-

• Geopolitical Risk. The U.S. trade war with China, the humanitarian crisis in Venezuela, and Britain's planned Brexit from the European Union are three examples of this. Each raises uncertainty for investors about the future, and that tends to make them anxious. Investors are also worried about the economic impact of U.S. government shutdown when global growth is already lean.

• High Stock Valuations. Investors are also increasingly wary of the stock market that's pricey relative to projected earnings. So, some investors are cashing in at least part of their stock holdings and sending some of the proceeds to gold funds. With stocks now showing signs of rolling over in response to trade talks concerns and a weaker growth forecast, gold should find enough support once again to prevent a serious challenge at support, currently at $1,300 an ounce, followed by $1,275

• Dollar - Gold is being pushed around by the U.S. dollar in the near term. Traders are getting out of anything to do with Europe on concerns of weakness in the region and going for safe-haven buying into U.S. treasuries, which is pushing up the dollar. But a possible shut down and impact of the US economy on its global counterpart, might make the dollar weak thus pushing gold further. 

• The Federal Reserve.  The Fed also seems to be at "an inflection point" when it comes to U.S. interest rates. He notes that the investment community went from expecting the Fed to boost rates multiple times this year to now perhaps making no increases in 2019. Lower interest rates tend to weaken the U.S. dollar and boost inflation risks, making gold more attractive. Gold and dollar are inversely related so whenever there is any negative effect on the dollar, gold prices tend to rise.

For gold, a lot of the recent action is largely dictated by the fact that the dollar is holding firm over the past two weeks. That has seen gold fall from resistance around $1,326 to current levels. But as long as the figure level still isn't breached, there's still favorable momentum to for gold to continue its upside run since November last year. We remain of the view that the $1,350 level is viable in the coming months, and note the $1,360 technical resistance level many market participants are watching.

Gold gains acceptance

Gold has time and again proved its worth. This time gold took long to do so, but it has finally gained acceptance. Once again gold has proved that it is one of those investment assets, that is capable of reducing portfolio risk and boosting returns in times of uncertainty.

Currently, looking at the geo-political environment, the benefits of gold will stand out further mainly for 3 given reasons-

1. Other asset classes - gold has a low and sometimes negative correlation with other asset classes. For this reason alone, many institutional investors include a modest allocation to gold in their portfolio. Today, gold’s lack of correlation with conventional assets is particularly significant because markets are increasingly inter-connected and volatility is a persistent concern. Diversification into assets such as gold is widely accepted as a smart way to lessen risk.
2. Alternate currency- gold can act as an alternative currency. A prolonged period of monetary easing has caused a sharp increase in money supply and reduced the value of fiat currencies. Over the past decade, for example, the US dollar, euro and RMB have depreciated sharply against gold. The dollar and the euro have more or less halved in value against gold since June 2007, while the RMB has fallen by around a third. One of the main reasons of stock piling gold is that that central banks and main financial want to reduce dollar dependency and instead store gold as an alternate currency.
3. Zero Credit risk - gold has no credit risk. It does not compose an obligation of a government so it is not a liability. As such, ownership of allocated physical gold protects investors from credit risk, providing considerable comfort during times of crisis.

Now what lies in future for gold mainly depends on the strength of the dollar. Once the impact of the President Trump-initiated tariff wars, particularly those affecting Chinese imports, starts to impact U.S. domestic prices and margins, which they undoubtedly will, this could tip the U.S. economy into recession.  Should this happen equities markets would likely start to spiral downwards, the dollar’s strength would weaken again and this could all force the Fed’s hand.  It wouldn’t want to see the blame for any downturn movement in equity prices being attributed to its interest rate policy.  But that could be a reaction too late.  Past history seems to be littered with U.S. recessions following Fed tightening patterns.  Could we see this happening again?  If so the gold price, in U.S. dollars at least, could be a major beneficiary

Drivers for Gold

The past few trading days have seen the gold price hovering above and below the $1,200 mark in the light of a stronger dollar and a lack of Chinese data due to the nation’s Golden Week holiday this week.  Every time the gold price has nosed above $1,200 it has been taken down a few dollars again.
There were important key events that occurred during the week.

Let’s have a look at all that has been affecting gold - 

US Economic Data - Data on Wednesday showed that U.S. service sector activity accelerated to a 21-year high in September and another report showed that private sector hiring increased at the fastest pace in seven months in September.

US Dollar - Gold prices inched down on Thursday as the dollar strengthened on positive U.S. economic data. Rising U.S. Treasury yields were also cited as headwind for the precious metal.
The dollar hit an 11-month high against the yen and stood tall against other its peers on Thursday, boosted by a spike in Treasury yields following upbeat U.S. data and comments from Federal Reserve Chairman Jerome Powell that were seen as hawkish.

Rupee at an all time low - Rupee was at an all time low of 73.34 on Wednesday, which further spikes gold prices in spite of a global down fall. Increased buying by the world’s second-biggest gold consumer would support global prices that have traded near $1,200 an ounce since late August, but also widen India’s trade deficit and add to pressure on the Indian rupee.  Rupee is consistently falling and we don’t know how much it will fall further. It is prompting investors to hedge their risk with exposure to gold.

Domestic gold prices - Gold prices crossed the Rs 32,000 per 10-gram mark on Wednesday at the bullion market as fresh buying by local jewellers ahead of the festive season pushed up prices. Positive global cues also supported the price move. Prices of the yellow metal surged by Rs 555 to reach Rs 32,030 per 10 gram.

Demand for gold - Traders in India,  said that they are building up inventory ahead of Diwali and Dhanteras next month. Also, globally sentiments for gold improved after US and Canada reached an agreement to salvage a North American free trade deal. India’s gold imports may rise in the fourth quarter as investors seek alternatives to faltering equity markets and a plunging rupee. Traditional buying will also rise during the festival season, said several sources involved in the market.

Meanwhile we expect the gold price to continue hovering around the $1,200 mark, give or take a few dollars.  There does seem to be an appetite to take it higher, but every time it does so it seems to be knocked back.

What will probably drive gold in the following few months -
• Positive or negative U.S economic data
• Any news on Chinese gold demand which will surface once the Chinese Golden Week holiday ends
• Euro zone trials
• Italian Debt Situation
• Brexit negotiations
Keeping the above events in mind, a mixed bags of reactions is expected from the markets for gold.

Time To Add Gold In Your Portfolio

Gold has fallen more than 8% this year as concern about trade disputes; currency weakness in emerging markets and rising US interest rates has strengthened the dollar, making bullion more expensive for buyers with other currencies.

TRADE DISPUTE - Gold is trading back above $1,200/oz ahead of the expected announcement from the White House that China is about to get hit by additional tariffs on goods valued at up to $200 billion. The latest US trade balance for July showed the US in the red by $50.1 billion while the trade deficit with China rose to a fresh record of $36.8 billion.

Investors have been waiting for a fresh round to be fired in the Sino-U.S. trade war after a public comment period for proposed U.S. tariffs on a list of $200 billion worth of Chinese imports, which includes some consumer products, ended late last week.

With his domestic agenda being challenged by the upcoming midterm elections, less-than-flattering comments from White House insiders, and the ongoing Mueller investigation, President Trump is unlikely to step back from his fight with the Chinese.

The prospect of an escalated trade war continues to make matters worse for emerging market bonds, stocks and currencies.

The trade war and its effect on the USD/CNY exchange rate remains the primary determinant of Gold prices in dollar terms. Until either the trade war ends or the dollar falls, either of its own accord or due to a Fed reversal in policy, USD/CNY is likely to go higher and gold lower.

The escalating trade war crisis continued to spill its effect on gold in the past week too. Gold prices rose on Friday due to a lower dollar and jitters about an escalation in the U.S.-China trade dispute after fresh threats by President Donald Trump, although bullion is still heading for its fifth straight monthly decline.

Spot gold was up 0.6 percent at $1,206.19 an ounce during Fridays trading hours- a gain of 4 percent from the 19-month low of $1,159.96 hit on Aug. 16.



CURRENCY WEAKNESS - Lately positive U.S. economic numbers have been showing signs of a strengthening U.S economy. This has further strengthened the dollar against major basket of currencies. In India too rupee was at a record low of 72.17, sliding by 44 paise against the US dollar on rising demand from US dollars by bankers and importers.

Like the trade war, the dollar prices continued to show its effect on gold this week too.
The dollar traded higher against a basket of currencies on Monday amid fears of a potentially major escalation in the China-U.S. trade conflict, while Sweden's crown rose following the previous day's election.

U.S. President Donald Trump warned on Friday that he was ready to slap tariffs on virtually all Chinese imports into the United States, threatening duties on another $267 billion of goods in addition to the $200 billion already facing the risk of duties.

The index also found support after data showed U.S. jobs growth accelerated in August and wages notched their largest annual increase in more than nine years, boosting the prospect of faster interest rate rises by the Federal Reserve.

Non-Farm payrolls led to some modest downward pressure on gold. Furthermore, though the dollar will continue to weigh on gold, and as long as the dollar is strong, gold will remain constrained.

RISING INTEREST RATES - Gold prices held steady during Asian trade on Tuesday as investors remained on the sidelines amid expectations of a U.S. interest rate hike this month and on fears of an escalation in the Sino-U.S. trade war.

Strong U.S. payrolls data last week cemented expectations that the U.S. Federal Reserve will raise interest rates in September, in what would be its third hike this year, with expectations of one rise more in December.

Higher rates increase bond yields, making the non-yielding bullion less attractive and tend to boost the dollar.

Now what’s interesting to note is that though gold is being hammered lately, financial advisors in Asia, are suggesting their clients that this is the right time to include gold in their portfolio. They have been asking them to take advantage of dips and to stockpile to protect assets against pounding equity markets.

Gold has sold off over the past few months as USD interest rates have increased, so there is more opportunity to buy. For clients who do not have an allocation of gold in their portfolios, now is the time to add gold.

Gold being pulled between bulls and bears

Lately, gold has shown a typically consistent price pattern. It has witnessed a lot of pull and push in the trade range. It generally starts on a negative note, recovers and is pulled down again. So it’s a wave like movement, which leaves the markets perplexed over its behavior.

It’s difficult for market players to project or analyse the markets for gold- whether it’s bullish or bearish. This has been going on for quite some days now. As gold moves up and the market expects it to cross the key levels. Something contradictory happens and the yellow metal starts trading negative again.

The classic example of this would be the recent Federal Open Market Committee meeting on July 31/August 1.

 The U.S. Fed chair Jerome Powell’s statement on the U.S. economy and likely Fed interest rate policy for the remainder of the year strengthened the dollar and pushed gold’s trading range back around $20.

When the data released was not par expectations, gold did manage to trade high, but then was pulled down over rate hike expectations.

So right now the market is divided in to groups. This that want the yellow metal to fall below $1200 and those that would like gold to strengthen and cross $1400. So there is a kinda tug of war between the $1200- $1400 trade range.

In the short, probably in the coming month gold looks negative. It might be down. But is soon expected to gain momentum as we the onset of the festive season in India which will mark a rise in demand for gold. Apart from this, equities look weak and markets might shift to gold as an alternative investment.

One more important thing that will contribute to these rising prices is bitcoins. After the much hype surrounding this investment option, it’s not being welcomes by the parties that are suspicious about its future.

Coming to our main point of discussion, Will gold stick to the bears market or is it expected to enter the bulls. Well it depends on the following factors-

• Markets returning to trade after U.S. Labor Day Holiday
• Dollar
• Chinese import tariffs laid by the U.S and reaction/actions of the Chinese government
• U.S inflation
• Fed policies
• ECB
• Russia’s market volatility

Gold, too, has historically had a role as a haven asset in times of global market turbulence. Now, Financial markets continue to watch for any evidence that might knock the Fed off its projected path to raise interest rates twice more this year and three times next year. Apart from that any global uncertainty is expected will be welcomed by the bull supporters for gold. Markets also await the onset of the festive season in India, which will see a rise in the demand for the yellow and thus push up gold prices further. So currently along with the US economy happenings, a lot of global factors will also play a key role in influencing gold prices. Any sudden event can boost the yellow metal high towards the end of 2018.

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.

Trade war fails to weaken the dollar

Gold prices have not managed to stay above the $1300 level- it could be due to a strong dollar or maybe profit taking or even price manipulation. Currently, out of all, gold prices seemed to have been highly influenced by a strengthening dollar.

Gold prices fell to new 2018 lows against a rising Dollar on Tuesday in London, hitting $1274 per ounce as President Trump threatened to hit back at China's retaliation over last week's new US trade tariffs with extra charges on another $200bn of Chinese imports.

Accused of "blackmail" by Beijing, Trump says these extra 10% tariffs will only come into force if China “refuses to change its practices."

This news gave a boost to gold in the Asian markets.

However the metal failed to extend further as offers [to sell around] $1283 restricted top-side gains.

Gold remains bearishly offered, and it’s all about the dollar strength as the greenback rockets higher on EM commodity and the China meltdown. And at least for the time being the markets have utterly forsaken the idea that the US trade war escalation could become ultimately detrimental for the dollar.

Now currently the matter of concern is that why is the dollar showing sign of strength despite an apparently escalating trade war which is unlikely to do anyone any good?

At the moment the dollar strength is two-fold. Key currencies like the Euro, the British pound, the Canadian and Australian dollars and the Chinese Yuan are being driven downwards (hence the dollar appears to be rising), but also money will be flowing into the dollar as perhaps more of a safe haven in times of an ensuing global financial crisis than gold and other precious metals.  We think that this will only be in the short term and we need to wait for some concrete events that will bring in volatility in the markets.

Gold expected to rise moderately

While gold has primarily been stuck within the US$1,310 to $1,350 range this year, it managed to rise 3.61 percent during Q1 2018.

The yellow metal gained some first-hand experience in market volatility during the period, as inflation gave it boosts while US Federal Reserve interest rate hikes brought pressure down
On the other hand, United states willingness to resolve an escalating trade fight with China, pulled back gold prices from one week highs reached in the earlier trading sessions.

The United States voiced willingness on Wednesday to talk with China after Beijing retaliated against proposed U.S. tariffs on $50 billion in Chinese goods by targeting key American imports.
As investors pulled out of gold, Asian equities rebounded from two-month lows with investors hoping a full-blown trade war between the world’s two biggest economies can be averted.

Spot gold was down 0.3 percent at $1,329.11 per ounce by 0409 GMT, after touching a one-week high of $1,348.06 on Wednesday.

But what looked like an eased out situation, became a bit tense after economic numbers came in from U.S. Gold prices rose on Friday, as Wall Street stocks tumbled and the dollar fell as rhetoric from U.S. President Donald Trump and Chinese officials fed worries about a possible trade war, and after U.S. jobs data came in weaker than expected.

U.S. stocks fell, with the Dow down more than 450 points, after Trump on Thursday threatened to slap $100 billion more in tariffs on Chinese imports, and Beijing pledged a “fierce counter strike”.
Falling stock prices dragged the dollar against the yen and the euro. Also pressuring the U.S. currency was data showing the U.S. economy in March created the fewest jobs in six months, which might prompt the Federal Reserve to go more slowly on plans to raise interest rates.

An intense trade war between US and China kept gold exposed to fluctuations. And hence the market is paying very much attention to the dollar and bond market in terms of what the Fed is going to do.
While any escalation in geopolitical tensions will raise the demand for the yellow metal, we already see an increase in the demand from the Indian markets.  Though demand for gold in whole of Asia was muted, there is a slight pick-up in buying in India ahead of the wedding season and a key festival.

This month Indians will be celebrating the annual festival of Akshaya Tritiya, when buying gold is considered auspicious.

Moving back to global worries, gold in the near term is exacted to raise moderately – Reasons being

• A weakening US dollar: A tightening monetary policy in Euro zone will result in the US dollars downtrend. And changed in the US fiscal policy will also have negative effect on US dollar, thus proving to be positive for gold.  The US dollar’s downtrend will resume later in the year. “One key reason behind this is the impending tightening of monetary policy in the Euro zone, given that the euro accounts for nearly 60% of the dollar index,” the report states. It also mentions changes to US fiscal policy, which could have a ripple effect on the US dollar yield curve.
• Volatility in equity markets. - The markets are too optimistic and bullish for equities and this over confident attitude could backfire, resulting in spiking gold prices.

These not so extreme, but moderately influential factors might spike gold prices in the near term but not to a great extent.

Gold stabilises around $1130

The Federal Open Market Committee (FOMC) on Wednesday December 14 raised interest rates to a range of 0.5-0.75% from 0.25-0.5%, which was widely anticipated and was largely priced in by commodities and equities.

Modestly analysts believe that higher interest rates in the USA are not expected to have much of an impact on metal markets unless it reaches 2%.

And while higher rates could cause issues if they are raised too quickly or too high, this is not an immediate threat.

The markets have somewhat calmed down with gold hovering near $1130 an ounce.

Gold was trading calm in London on Thursday December 22 – where prices are stuck around $1,130 per oz while many investors are side-lined as the end of the year approaches.

It’smore of a holiday mood where US and Chinese markets willremain shut for Christmas. And hence business and liquidity is expected to dry up till New Year.

The spot gold price was recently indicated at $1,130.25/1,130.45 per oz, down $0.60 on Wednesday’s close.

Later on, prices fluctuated in a nominal range following important data realised during the week.

This week’s highlights were as follows-

• The US final third quarter GDP growth was revised upwards to 3.5% from 3.2% and
• Core durable goods orders increased 0.5% month-on-month in November, which was better than the forecast of 0.2%.
• Durable goods orders fell 4.6% month-on-month in November, still better than expectations of a 4.9% drop.
• Weekly unemployment claims, however, came in at 275,000 above consensus of 255,000.
• The November core PCE price index was flat against the forecast of 0.1%
• Personal spending was at 0.2% below expectations of 0.4%.
• CB leading index and personal income were both unchanged in November, and below their forecast of 0.2% and 0.3%, respectively.
• The US government bond market strengthened slightly on Wednesday, with the 10-year US bond yield closing at 2.53%, down from a recent peak of 2.60% last week.

The latest [US] data which has both positive and negative reflects the state of the current US economy. Taking into consideration the outlook for the US economy, future US economic data should trend towards improvement. This could provide some downward pressure for gold and silver.

Recent strong US macroeconomic data and sanguinity over president-elect Donald Trump’s prospective infrastructure spending plans have raised expectations of more interest rate increases in the USA next year. This has also enhanced the US dollar and increased appeal of risk assets like equities, while decreasing the attractiveness of haven assets like gold.

However, he gold price was a touch higher on the morning of Friday December 23 in London, finding some support from bargain hunting before the year-end holidays but lacking sufficient momentum for a marked breakthrough.

The spot gold price managed slight gains during Asian trading hours on Friday December 23 following the release of a range of US data on Thursday.
The momentum for precious metals has slowed but broadermarkets remain tough and positivity for 2017 remains high,

This reflected a moderate decrease in risk appetite on the back of growing political tensions between the US and China after President-elect Trump picked Peter Navarro, a China hawk, to run the US National Trade Council.

Precious metals are expeted to shine next year . Investors may continue to remove their bullish bets to take advantage of positive global risk sentiment and lower volatility across risk asset classes. But the level of contentment in the financial markets may take some participants by surprise early next year, which may trigger a strong rebound across the complex.