It's Data Packed Week - RSBL

Gold prices edged higher on Monday, helped by a retreat in the dollar and bond yields, while investors awaited a slew of U.S. economic data this week for more clues on interest rate outlook.

Gold has started the new week on a strong note as the FX market largely remains range-bound in part due to a UK holiday. It's up $7 to $1921 after touching $1925, which was the highest in more than two weeks.

The dollar eased against rivals, making gold less expensive for other currency holders. The benchmark 10-year Treasury yields held below their recent peak. 

Looking ahead, the precious metal will be very sensitive to incoming US economic reports, given the pledge by the Federal Reserve Bank (Fed) to proceed with caution after having already delivered 525 basis points of cumulative tightening since March 2022 in its most aggressive hiking cycle in four decades

This is the unofficial last week of summer for the U.S. Look for the marketplace to become more active next Tuesday, following the three-day U.S. Labor Day weekend holiday. This is a big week for U.S. economic reports, so traders and investors are likely to become at least a bit more tuned in as the week progresses. The U.S. economic data pace picks up rapidly on Tuesday and it’s a big data week.

Some Important data releases are due this week- 

● U.S. personal consumption expenditures price index report due on Thursday

● The August US nonfarm payrolls (NFP) report due out on Friday is likely to provide valuable information on the outlook and guide the Federal Open Market Committee's (FOMC’s) decision-making process, so traders should follow the release closely.

● The strength or weakness of the NFP survey will be pivotal for the US dollar and gold prices, significantly shaping their near-term trajectory by influencing the Fed’s tightening roadmap.

To sum up, the Gold Price has the majority of catalysts needed for the further upside but $1,940 and broad US Dollar weakness, as well as the downbeat yields, will decide the further advances of the precious metals and the dollar

The U.S. economy is set to enter a period of very low growth combined with persistent inflation, and this means precious metals like gold and silver are likely to see significant prices increases.

While we will not rule out the potential for additional upside action in gold and silver prices today, bullish classic fundamental supply and demand information is not overtly clear for the bull camp. Nonetheless, the outlook for China has improved minimally and the charts in gold and silver prices have improved thereby allowing for some follow-through gains. We suggest longs use stops on gold at $1937, with stops in September silver at $24.07.

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.