Markets should wait for more stability

Last week, the price of gold spiked above $1,400 per ounce, a level that, signals the beginning of a new bull market for gold.

Many factors have been driving gold’s price higher, including recent changes in the U.S. Federal Reserve’s outlook that increased the chances of future rate cuts, the European Central Bank’s comments from earlier this month signalling that further rate cuts may also be a possibility in Europe, falling U.S. Treasury rates and a declining U.S. dollar.

The surge in the price of gold following the Federal Reserve meeting indicated a material change in market behaviour as the adjustments to the Summary of Economic Projections (SEP) fuel better for lower US interest rates.

Some disappointing numbers coming in from the US strengthened gold prices further.
The US economy showed fresh worrisome signs on Monday as home sales and consumer confidence sank. Sales fell 7.8% to a five-month low in a sign that low rates aren't spurring activity. Consumer confidence also dove to 121.5 from 131.0 as the expectations survey cratered. Those numbers added to the pessimism in the US dollar early and lifted gold for the sixth day.

On a day filled with economic data and Fed speakers, it was St Louis Fed President James Bullard who stole the market's attention with a hint that a rate-cutting cycle isn't coming. Instead of a series of rate cuts, Bullard implied there would be one or two. 

Like a typical Bollywood masala movie, there were a lot of twists and turns that continued on Fed chief and other Fed members as FED GUV had appeared just before Powell’s Speech on 25th June, and he said that an emergency is not beyond the realm for Fed.
Later Powell came out and stated that Fed and the independent Body don’t come under political pressure and that one weak data doesn’t necessarily mean a weak economy.

However, comments from St. Louis Fed President James Bullard, a 2019 voting member on the FOMC, suggested the central bank will insulate the US economy with an “insurance cut” as the official insists that a reduction of “50 basis points would be overdone.”

Moreover, Chairman Jerome Powell pointed out that the baseline outlook for the US economy “remains favourable and it seems as though the FOMC will take a more reactionary approach in managing monetary policy as the central bank head pledges to “closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”

With that said, details of a US-China trade deal may ultimately lead to a minor adjustment in monetary policy, but Chairman Powell and Co. may have little choice but to re-establish a rate cutting cycle as the Trump administration continues to rely on tariffs and sanctions to push its agenda.

These price movements had a spill effect in the domestic markets too. Local gold prices hit a record ₹35,960 per 10 grams on Tuesday, having jumped more than 10% over the past month. People generally don’t tend to buy gold in such high volatile markets. Such high jump in prices is welcomed with a dampening demand as investors and consumers would prefer to buy gold in a more stabilised market.

So all in all, the DOW turned weak. The US 10y yields did not gain and still hover 2.00%. This is one indicator that rate cut will be there and the dovish view has to be maintained by FED and that’s the reason that gold cannot be bought at $1405-$1425.
We would advise markets to wait for more stability and clarity on the global economic front.

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 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.

Is 2019 the year for Gold

2018 has a highly volatile and fluctuating year for gold as it faces many headwinds. A strong dollar, rate hikes by the US Federal Reserve (the Fed) coupled with accommodative policy from other central banks and a US economy buoyed by tax cuts, fuelled positive investor sentiment and pushed US stock prices higher through the start of October.

However, as geopolitical and macroeconomic risks increased, emerging market stocks pulled back and developed market stocks eventually followed.

As 2019 begun, have seen a sharp deterioration in risk sentiment following soft macroeconomic data in December and renewed concerns about the future direction of growth, particularly the risk of U.S. growth catching down towards weaker economies. December was a volatile month which generated a safe haven appeal for the yellow metal.

Lately gold has outperformed other assets in its class. Risk assets took a big hit in 2018, with the stock market suffering the worst in December but gold fared much better as it grew around 4 percent.

If we see the demand graph for gold for the next 6 to 8 months, we expect it to rise as it will benefit from the interplay of market risk and economic growth, with key dynamics, such as financial market instability, monetary policy, the dollar and structural economic reforms.

Rising geopolitical tensions- A fragile political alliance in Spain along with fending off secessionism, an instable monetary union in Italy, and internal turmoil in Europe and lastly social unrest in France- all of these clubbed together gave a very instable global picture. This growing uncertainty and the expansion of protectionist economic policies are making gold an increasingly attractive hedge tool.

Slow economic growth- Weak economic numbers coming from the US has spooked the markets. The U.S. manufacturing PMI (Purchasing Managers Index) hit a 15-month low in the same month. Manufacturers' confidence in business also slipped to the lowest level in nearly two years. This in turn affects the rate hike frequency thus influencing gold prices.

Federal Reserve’s monetary policy- The Fed had been tightening monetary policy aggressively. But on Jan. 4 Fed Chairman Jerome Powell signalled Wall Street that policymakers will be patient with policy moves and are attuned to the messages coming from markets. While gold may face headwinds from higher interest rates and dollar strength but currently the effect of the same seems to be limited on gold as the Feds stance is neutral. Any delay in rate hike will push gold prices higher.

Demand for gold as a hedge tool- Globally, there were net positive flows into gold-backed exchange-traded funds in 2018. However, North American funds suffered significant outflows in the second and third quarters, with this trend only reversing in the fourth quarter as risks began to intensify. But in 2019, global investors are expected to favour gold as an effective diversifier and hedge against systemic risk on multiple global metrics

Central Bank Buying- In addition, central banks continue to buy gold to diversify their foreign reserves and counterbalance fiat currency risk, particularly as emerging market central banks tend to have high allocations of US treasuries. Higher demand once again means higher prices for gold.

Time and again it is proved that gold has delivered returns and has performed better than other assets in its class. Moreover, its liquidity and risk adjusted returns makes it an investors favourite and hence its looks more relevant this year.

Time to buy gold will arrive soon

So far this week looks good for gold as we saw its prices edging higher in Thursday In Asia and it traded near a 5 month high amid U.S. yield curve inversion.

The yield curve inversion triggered concerns about economic growth and a dollar sell-off recently. The two-year/10-year spread was at its flattest this week in more than a decade amid a sharp fall in long-term rates. A flatter curve is seen as an indicator of a slowing economy.

Any slower pace in the economy adds to negativity in growth. This has put pressure in the dollar and further strengthened gold prices. The greenback came under pressure last week when the market took comments from Fed chairman Jerome Powell as signalling a slower pace of rate hikes. Markets still expect the Fed to move forward with a quarter-point hike this month but have interpreted cautious remarks from policymakers to mean that further tightening in 2019 will have to be re-evaluated on economic and inflation data and hence the pull in prices has not been that high.

Furthermore, uncertainty prevails in the market over the upcoming Federal Reserve policy decision, as the Dec. 18-19 meeting looms just over the horizon.

On Wednesday gold hit a high of $1243 an ounce and plunge back to $1233. Though we have gold price moving up this year but the trading range has been sideways because it doesn’t stay at the peak for a long time.

Hence it has been containing most of the price especially since the 11th of October, between 1212 and 1243.  Gold bulls will need the Fed to halt its raising interest rate programme to see a major reversal in the price of gold. Once the Federal Reserve ends the tightening cycle, the time to buy gold will be near

So we can say that if the bulls keep running for gold then it will pick momentum from ere and will be seen crossing the $1243 territory and hopefully cross the July highs of $1257 an ounce.

The coming year looks positive for gold because the dollar is expected to weaken, US treasury yield might be lower, Chinese Yuan expected to recover and demand for jewellery predicted to rise.
And if all falls in place for the bulls then one wouldn’t be wrong if he expects gold to touch the $1400 level.

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.

Is It Time To Go For Gold

Gold prices have tumbled in 2018, dropping, despite fears of a global trade war and turmoil in emerging-market economies. Such issues are risks that the market has mostly shrugged off, but the precious metal could be well positioned to provide some safety in the event those factors escalate and start to have a bigger impact on equities.

Gold is historically an asset class that does well during turbulent financial markets. As a safe-haven, the precious metal attracts risk-averse investors during such times. But when markets are doing fine, gold moves in a range, giving no gain for long periods of time.

But now many investors are rethinking on these lines and are shifting their focus on the yellow metal. Though gold has declined in the current year, lately it has shown dome positive developments.

Past week too gold was lying low till Thursday but gained momentum the following day. Gold prices slid on Thursday as investors purchased riskier assets instead of seeking a safe haven in gold, amid hopes for a new round of U.S.-China trade talks. Spot gold declined 0.3 percent to $1,202.30 per ounce during Thursdays trading hours, after earlier hitting its highest level since Aug. 28 at $1,212.49.

But after the economic numbers came in from U.S., gold prices gained rally.

Gold rose on Friday as the dollar faltered after softer-than-expected U.S. inflation data dimmed the case for a faster pace of policy tightening by the U.S. Federal Reserve, amid signs of movement in the Sino-U.S. trade standoff.  Spot gold was up 0.5 percent at $1,206.10 an ounce thus gaining 0.9 percent for the week. The main reason for this positive developments were-

• U.S. consumer prices rose less than expected in August
• Underlying inflation pressures also appeared to be slowing,
• Suggesting the Federal Reserve’s pace of rate hikes could slow.
• The data falling short of expectations, investors are thinking that the Fed may not go for a rate hike in December
• The dollar’s index against a basket of six major currencies was a shade lower at 94.442 after slipping to a session low of 94.427, a bottom since July 31.
• The months-long trade rift between Washington and Beijing has prompted investors to buy the U.S. dollar in the belief that the United States has less to lose from the dispute.

Now the current upward trend is propelling investors to once again make place for gold in their portfolio as it can be used tactically as a potential hedge for a stock market correction and/or a reversal in the dollar and real interest rates.  A reasonable 3 to 5 per cent of the portfolio can surely be allocated to gold.

It’s not only the investors, but leading banks and financial institutions that have also been adding up their gold reserves. Starting in 2008, central banks have been continuously adding gold to their reserves, though gradually and in relatively small amounts. In 2008 and 2009, such institutions added 580,000 and 210,000 ounces of the yellow metal (source- CPM data) and since then the reserves have been piling up, with around 11 million ounces getting purchased in 2017 and similar trend are expected this year too.

Russia too has been diversifying its monetary reserves. Most central banks are diversifying away from the dollar.

What’s even more interesting is that the RBI has bought 8.46 tonnes of gold in the financial year 2017-18. This was its very first purchase in almost nine pears. The last time RBI purchased gold was in Never 2009 when it has bought 200 tonne of yellow metal from the IMF.

Now currently domestic investors are thinking as to what to do with gold that has not given many gains in the last five years. Well the market experts believe that investors will be guided by expectations about where the Indian financial markets are headed and may give more though to gold in the coming months.

Though gold has not moved much over the past five years, some are still confused with the thought that with the current global trade wars and currencies dropping against the dollar is it time to go 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.

Political Turmoil Expected to influence Gold

Gold turned negative on Tuesday as U.S. Treasuries rose after the United States and Mexico struck a trade deal, with analysts saying ongoing U.S.-China tensions would continue to weigh. Spot gold lost 0.4 percent to $1,206.39 per ounce during Tuesdays trading hours.

Following suit, Gold price fell on Thursday and is set to record a fifth monthly fall on expectations of a higher interest rate, while the dollar also edged lower.  Powell’s speech came after U.S. President Donald Trump said earlier this month that he was “not thrilled” about the Fed’s decision to hike rates. A potential hike in interest rates in general decreases demand for gold, which yields no interests.

Meanwhile, the U.S. reported on Wednesday the strongest growth of its second-quarter GDP in a decade, expanding at an annual rate of 4.2%.

Markets widely expect the Federal Reserve to hike interest rates in September and December following last week’s Jackson Hole symposium, where Fed’s chairman Jerome Powell defended policy of interest rate hikes, adding that he expected a low but gradual growth of interest rates as inflation is reaching the country’s 2% target.

On the other hand, metals investors are wondering if political turmoil could bring in volatility several for gold and silver prices.

Furthermore, what gained focus over the week were the recent prosecutions of prominent Trump campaign figures that now have Democrats giddy over the possibility of being handed grounds for impeachment. The chances for impeachment did get a boost, although it would seem to hinge primarily on whether the Republicans lose the House and Senate in November. It’s a very daunting political task. Only two presidents have ever been impeached – Andrew Johnson and Bill Clinton. Neither were convicted in the Senate and removed from office, however. That can only be done with a ⅔ majority vote.

If the threat of impeachment somehow becomes more credible based on the revelation of more serious crimes, then all bets are off. It will move markets. But, for now at least, it remains a long shot.

Major political turmoil is just one of many reasons to buy insurance in the form of gold and silver bullion. Investors can add upheaval in Washington to a longer list, which, at the moment, also includes:

• Precious metals looking oversold.
• Extremely bullish relative positioning of banks versus speculators in the Commitment of Traders data.

Gold expected to end the year on a positive note

Spot gold, which is down over 6 per cent 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 US interest rates this year.

Gold's appeal has been fading this year with prices sliding near to the key US$1,200 level, partly because of an upbeat outlook on the US economy that's strengthened the dollar.

Gold prices were higher on Friday, after disappointing jobs data pushed the U.S. dollar lower but still remained near two-week lows. A stronger dollar and rising interest rates have weighed on gold in recent months.

Gold prices are seeing just modest gains in the aftermath of a U.S. non-farm jobs number that did not meet market expectations.

The U.S. employment report for July showed –
• A significantly lower-than-expected non-farm payrolls rise of 157,000 jobs. The number was forecast at up 190,000, but after
• Wednesday’s ADP national employment report for July that showed a rise of 219,000, many were looking for a non-farm jobs number north of 200,000.

Markets believe that U.S economy is on its path of gradual progress and hence they didn’t react much to these numbers. One more reason for less volatility could be the vacation season in U.S and Europe that continue to keep the, markets calm until U.S. Labour Day holiday.

Even though these numbers were below expectations, it did strengthen the Federal Reserve action to gradually increase interest rates.

The Fed left interest rates unchanged on Wednesday, as expected, but pointed to the potential for increased rate hikes due to strong U.S. economic data.

Higher rates are a negative for gold as the precious metal, which does not pay interest, struggles to compete with yield-bearing assets when rates rise.

Furthermore, the metal saw some relief on Friday as U.S. hiring cooled in July and China moved to support its currency.

But markets are now positive towards gold. Many analysts believe that we are already at the bottom of this cycle for gold, and they believe that gold prices will pull up from here in the next 6 months.
Reasons being-

Trade War- the US and China imposed import tariffs on each other, fraying nerves on financial markets. A further escalation in the trade war crisis will definitely push up gold prices.

Demand- After a slow season in Mat, gold is all set to run higher during the coming 6 months over rise in its demand.

The above chart shows what happened towards the end of each of the past five years, as Chinese and Indians loaded up on gold for Spring/Summer wedding gifts and as savings for post-harvest cash. There’s no reason to expect them behave differently next time around.

Dollar dependency-  the analyst are convinced that gold will continue to grow in value relative to currencies, particularly as more states seek to rid themselves of their dollar holdings.

Gold Holdings- According to the latest estimates, Russia and China are in 5th and 6th place in total gold holdings, respectively.  The US is estimated to have over 8,100 tons of gold. Germany, which recently repatriated its gold from the US, is in second place, with 3,371 tons; Italy is in third with 2,452 tons, and France in fourth with 2,436 tons. Moscow's historical record in total gold reserves was reached in 1941, when the USSR stockpiled some 2,800 tons of gold just before the start of the Second World War.

Looking at the above mentioned events, we think that gold is expected to bounce back from its year lows and wil head positive towards the year end.

A negative environment awaits for gold

Gold prices fell Friday to their lowest settlement in nearly a year, with the precious metal failing to find safe-haven support from the U.S.-China trade dispute, as the U.S. dollar gained for the week.
old prices were muted on Friday, stuck in a tight trading range, as the dollar extended rally from the previous session when strong U.S. inflation data and trade war concerns boosted demand for the greenback.

Gold prices fell again versus a rising Dollar on Friday in London, heading for a 1.3% weekly drop at new 2018 lows beneath $1240 per ounce as the US currency pushed higher on the FX markets amid President Donald Trump's ongoing tour of Europe.

The dollar was upbeat near a 10-day peak versus a basket of currencies on Friday, supported by Treasury yields that edged higher on expectations the U.S. inflation rate will rise.     

U.S. consumer price data on Thursday showed a steady build-up of inflation that could keep the Federal Reserve on a path of gradual interest rate increases.                 

Spot gold was down 0.1 percent at $1,245.54 an ounce during Fridays trading hours. For the week, the metal was down 0.7 percent.

Lately, the dollar has been very influential and one of the most prime mover for gold prices.
A stronger dollar—which has drawn haven demand amid the clash over trade between the U.S. and China and pushed higher on rising-rate expectations—has been the most significant headwind for gold. A strengthening greenback can make commodities linked to the monetary unit, such as gold, more expensive to buyers using other currencies

Market sentiments have been largely positive on the greenback as investors turned around from the safe haven asset despite rising geopolitical risks.

Currently, there is a lot of uncertainty prevailing in the markers as far the trade was is concerned.

The United States and China could reopen talks on trade but only if Beijing is willing to make significant changes.

If this uncertainty continues and there is any sort of escalation in the crisis then we might see the yellow metal gaining its luster.

During times of uncertainty gold prices can receive a boost as the metal is widely considered a safe-haven asset but bullion has failed to benefit from recent trade disputes.
   
But this is not the end of it.  Right now even the inflation numbers are not helping gold. This is because inflation numbers support higher interest rates and this will create negative impact on gold. Gold, which is seen as a traditional hedge against price pressures, has shown little interest in the latest inflation data, which hit their highest level in six years

Furthermore, The Federal Reserve’s hawkish tightening cycle, a strong economy, and a higher U.S. dollar will steal all of the market’s attention this year as the trade war tensions pause, pressuring gold prices even further. All of these clubbed together, can create a significantly negative atmosphere for gold.

Dollar gains safe haven appeal

With the first half of 2018 now drawn to a close, much of the financial medias’ headlines and commentary relating to the gold market has been focusing on the fact that the US dollar gold price has moved lower year-to-date. Specifically, from a US dollar price of $1302.50 at close on 31 December 2017, the price of gold in US dollar terms has slipped by approximately 3.8% over the last six months to around $1252.50, a drop of US $50.

It’s been a choppy first half. After trading above $1,300 since the start of the year, prices ticked lower in mid-May and went into free fall two weeks ago, erasing the year’s gains. Investors shunned bullion and favoured the dollar and Treasuries instead as they weighed the uncertainties surrounding the impact of a U.S.- China trade war on global growth.

Gold’s losses in June, driven by an ascendant dollar, have put the precious metal on course for its biggest monthly drop since November 2016, when markets were roiled by Donald Trump’s victory in the U.S. election.

The metal dropped 3.6 percent in the month of July, while a gauge of the greenback is up for a third straight month amid escalating global trade tensions.

Investors have moved to the US dollar as a preference choice for safe haven .This has benefited the dollar and weakened gold. It has indirectly led to gold-price weakness, as the dollar and gold typically move inversely to each other. With the emergence of inflation, gold is likely to find a bottom, as the dollar’s gains weaken.

On the contrary, Suddenly, On Friday, gold finally gained support near $1245 after falling to a six month low.

Reasons being-

1. U.S. Final GDP Disappoints – The gross domestic product was expected to grow at a pace of 2.2%, but the actual figure fell to 2%. Consequently, the weakness in the U.S. dollar underpinned gold. 
2. EU Leaders Agreed on Conclusion – The Chairman of the talks, Donald Tusk said, “EU28 leaders have agreed on (summit) conclusions, including on migration”.

In response to this news, the investors moved their investments from Greenback to Euro. Therefore, the Euro jumped over 0.7% on Friday and dollar index fell 0.3%, causing a bullish reversal in gold.

But this week opened on a negative note for gold. Gold prices edged lower on Monday as the dollar firmed after last week’s U.S. inflation data supported the Federal Reserve’s outlook for future interest rate increases. The dollar strengthened against a basket of currencies and extended its gains against the yen to hit a fresh six-week high of 111.06 yen, supported by the relative strength of the U.S. economy and on prospects of further rate hikes from the Federal Reserve.

US dollar strengthens by any normalization of monetary policies thus weakening the yellow metal.
U.S. consumer prices accelerated in the year to May, with a measure of underlying inflation hitting the Federal Reserve’s 2 percent target for the first time in six years, data showed on Friday
The rise in price pressures will probably not shift the Fed from its stated path of gradual interest rate increases as policymakers have indicated they would not be too concerned with inflation overshooting its target.

Gold is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding non-yielding bullion, while boosting the greenback.

Long term looks favorable for Gold

Gold has fallen out of favour as investors prefer havens such as the dollar, Treasuries and yen amid fears that a looming trade war will damage global growth, hurt earnings and drag down stock markets and other risk assets. 

Gold has not fared well lately despite rising global trade tensions that have knocked down equities. Gold has been hurt by expectations for more Federal Reserve hikes complemented by a strengthening US dollar which further pulled down gold prices.

Many believe that gold has lost its shine. Each time it gets close to break the $1350 level, it fails and is unable to generate returns in a rising yield environment and the biggest obstacle for the yellow metal currently is the rally in US dollar .

Hence, precious metal’s “biggest disappointment” this year has been that it keeps failing to attract safe-haven inflows in a meaningful way.

Some even believe that gold has not bottomed out yet and there is further scope for a downfall as gold is oversold. With gold back to trading near six-month lows and prices struggling to catch a break during the past few weeks, analysts are saying that gold is failing to attract safe-haven interest due to a surging U.S. dollar.

However, given the recent equity-market correction and talk of a trade-driven slowdown in the global economy, it is likely that the market will start to get a lot less enthusiastic about aggressive Fed tightening and the US dollar. On the positive note, the interest-rate environment is becoming more favourable for gold, with inflation expectations rising — a good sign for the precious metal that has traditionally been viewed as an inflation hedge,

The Federal Reserve will probably raise interest rates two more times this year, and twice in 2019, while the European Central Bank will likely start tightening in September next year. That should shift the monetary policy divergence in favour of the euro relative to the dollar and be positive for gold in the greenback.

On top of that, lower gold prices might encourage more physical buying in key markets, including China and India.

So in the long term things look favourable for gold and the yellow metal might once again get into the safe haven mode.

Gold expected to be markets favorite soon

Last week we saw divergence in U.S and European Monetary policies. European politics too witnessed similar events. This affected gold prices and it hit a six month low as the dollar hit an 11 month high.

Gold prices are down for the second consecutive week with the precious metal off more than 0.70% to trade at 1269 ahead of the New York close on Friday.

The Federal Reserve hiked U.S. interest rates again this month, while the European Central Bank said its benchmark rates would not rise until after the summer of 2019.

Rate hike strengthened the US dollar while. Gold is trading at a six-month low in the global market.
The decline came in alongside losses in global equity markets this week as mounting geo-political tensions regarding a looming trade war continue to weigh on risk appetite.

TRADE WAR - The intensification of rhetoric between China and the U.S. has continued to weigh on market sentiment as investors weigh the impact of an all-out trade war between the world’s largest economies. While these concerns would typically be supportive for the yellow metal, expectations for higher rates and persistent strength in the US Dollar have kept prices under pressure with gold breaking to fresh yearly lows this week.

US Data - things have been quiet on the data front but look for that to change next week with U.S. Durable Goods Orders and the third and final read on 1Q GDP on tap. Highlighting the economic docket will be the May read on Core PCE (personal consumption expenditure) on Friday. Consensus estimates are calling for an uptick in the Fed’s preferred inflationary gauge to 1.9% y/y. A strong print here would likely see traders continue to price in a fourth rate-hike from the central bank this year- a scenario that would weigh on gold prices.

Gold prices edged up on Friday from six-month lows as the dollar slipped, but the modest nature of the recovery suggested speculators might still be poised to punish the metal further.

Gold tumbled last Friday after repeatedly failing to surmount the $1,300 level as speculators rushed to liquidate long positions and others put on bearish positions.

The dollar pulled back from an 11-month peak against a basket of major currencies on Friday, as the euro strengthened after a survey showed euro zone private business growth recovered in June. A weaker greenback makes dollar-denominated gold cheaper for holders of other currencies.
Now a matter of concern is that even though the dollar weakened, gold did not react much to it. Now we need to keep an eye on the movement of the yellow metal as too many powerful forces are expected to drive gold prices higher.

Geopolitical fear is the major force that is expected to exert its pressure on gold.  The crises in Syria, Iran, the South China Sea, and Venezuela are not going away. Despite Trump’s summit with Kim Jong Un, don’t expect the North Korean nuclear issue is over.

The headlines may fade in any given week, but geopolitical shocks will return when least expected and send gold soaring in a flight to safety.

Moving on to Italy. Italy’s debt to GDP ratio is amongst the highest in the world.  As the new government in Italy seeks to stimulate growth through increased borrowing, gold’s attractiveness as an asset which is not replicable and is no one’s liability will become more apparent.

Gold is the most forward - looking of any major market. It may be the case that the gold market sees the Fed is tightening into weakness and will eventually over-tighten and cause a recession.

At that point, the Fed will pivot back to easing through forward guidance. That will result in more inflation and a weaker dollar, which is the perfect environment for gold.

Meanwhile, there are numerous risks such as international trade conflicts, political crises, the dispute over Iran sanctions and high-priced stock markets that could be ripe for corrections.

Fed Rate Hike Fails to Dampen Gold Prices

After two days of meetings regarding monetary policy, the US Federal Reserve officially announced the second interest rate hike of the year on Wednesday, June 13.

The Fed lifted the target federal funds rate by 25 basis points, from 1.75 to 2 percent, but the increase had little impact on gold, which remained just below the psychological barrier of US$1,300 per ounce
The US Federal Reserve raised interest rates on Wednesday, and signaled two additional hikes by the end of this year, compared to one previously. Expectations of further US interest rate increases lowers demand for the non-interest-paying asset. Gold as expected to drop post a rate hike, but nothing like that happened.

Gold prices were higher on Thursday, rising above the $1,300 level as the dollar lost the momentum from a decision by the U.S. Federal Reserve to raise interest rates.
Gold prices jumped to $1,303.2 from below the $1,300 level overnight after the Fed’s rate hike decision hit the markets. The prices have held on well above the $1,300 level since then.

Gold prices are denominated in U.S. dollars, so the movement of the U.S. dollar index impacts the gold price. On Thursday, the U.S. dollar index that measures the greenback’s strength against a basket of six major currencies was down 0.03% to 93.53, giving up gains despite a promising outlook for the U.S. economy.

This no reaction movement in gold prices was because a lot of safe-haven demand is expected to take place. The trade war drama is not going to end anytime soon, it is probably going to be exasperated over the next month or so as the geopolitical uncertainties have not been resolved yet.

Rounding out the Fed’s meeting comes the knowledge that the central bank expects US GDP to grow by 2.8 percent in 2018, with economic activity projected to expand by 2.4 percent in 2019. Overall, the economy is expected to grow 2 percent in 2020. The median average of the central bank’s updated forecasts rose from March’s projection to 2.8 percent.

In addition to Wednesday’s interest rate hike, the markets are also reacting to the Fed’s guidance regarding future interest rates. Reports that US President Donald Trump will meet with his top trade advisers on Thursday to decide whether to activate threatened tariffs limited gold’s losses.

Reports that President Trump was preparing to put tariffs on billions of dollars of Chinese goods as soon as Friday raised concerns in the market that economic growth would be impacted. This saw some safe-haven buying emerge and saw gold prices not dropping cosiderbly in spite of a rate hike.

Gold to rise soon

Gold prices closed the week below $1,300 an ounce for the first time this year, after posting the largest weekly decline since December 2017. The biggest drop was on Tuesday when the precious metal plunged more than 2%.

Following a strong sell-off last Tuesday, Gold closed below a multi-month trading range that it had been contained within since January of this year, indicating that bears have won control at least temporarily. Because of this shift in price action dynamics in Gold, we are now watching upside moves / strength for potential sell signals at resistance levels to get short, as we believe there’s potential for more downside in the coming days

The downside was carried forward to the present week. Gold prices edged down on Monday as the dollar rose and demand for safe-haven assets eased after U.S. Treasury Secretary Steven Mnuchin said a trade war between China and the United States was “on hold”.

Spot gold was down 0.2 percent at $1,289 per ounce during early trading hours on Monday.
The dollar rose versus the yen and hit a five month-high against a basket of currencies on Monday, after Mnuchin’s comments downplaying a trade dispute with China, boosting risk sentiment amid hopes for an easing of trade tensions between the world’s two biggest economies.

A stronger dollar makes dollar-denominated gold more expensive for holders using other currencies. Furthermore, rising U.S. interest rates and the expectation that U.S. Federal Reserve will raise rates again next month, limits investor demand in non-yielding bullion.

Adding fuel to fire we saw, Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.1 percent to 855.28 tonnes on Friday.

After slumping over the past few months, some think that rally in gold prices will soon be over. Prices have fallen more than 5% since their April high and on Tuesday slipped below a key level $1,300 for the first time this year. Markets have been positioning for rising interest rates, which tend to move opposite of gold prices with regard to the opportunity cost of non-interest bearing assets.
But our analysts believe that this downfall won’t last long and there are reasons, more than one, which supports the fact the gold prices will rise in the short term-

European Crisis- Signs of turmoil in Europe may help revive haven demand for gold. In Italy, bonds and stocks plunged Friday, as the Five Star Movement and the League reached a coalition agreement to govern the country, outlining proposals that may pressure public finances.

It seems that debt crisis in Italy would have a far bigger impact than one in Greece.

Demand for gold from China - Chinese jewellery sellers are working to attract a prosperous, more sophisticated, younger generation of customers by expanding and diversifying its selection. Following a slow retail year for jewellery in 2017, China is looking forward to strong sales in 2018. Withdrawals at the Shanghai Gold Exchange have been above average at 170 tons monthly. April’s demand for gold was up 28 percent from 2017.

With political tensions between the U.S. and China escalating, Chinese investors are turning to gold bullion as an economic hedge. First quarter 2018 saw the demand for gold at 78 tons.

In addition to jewellery, the Chinese government has been actively increasing its gold supplies for the past decade, along with its ally, Russia. This move is believed to precede China’s plan for a gold-backed Yuan, which could significantly devalue the U.S. dollar and could replace the dollar as the global reserve currency of choice. If this happens, the price of gold is expected to rise to new, unprecedented heights, along with a political power shift from the West to the East.

Gold has always been in demand for its intrinsic value. If current trends continue and the demand for gold accelerates at its current rate, the price of gold will skyrocket.

The dollar -The "trade-weighted" gold price, a measure of the value of gold based on major currency movements, suggests that dollar strength explains much of the recent weakness in gold prices.
And though the euro has fallen nearly 5% against the dollar over the past three months, the two currencies may switch places soon which could further provide some support to the price of the yellow metal.

Demand for inflation hedges - Both inflation and expectations for rising prices have been steadily rising this year - personal-consumption expenditures hit the Federal Reserve's target of 2% in March. And while the central bank is on track to raise rates at least three more times this year, inflation jitters could still drive investors to the ultimate safe haven asset that is gold.

This, in turn, could feed through into higher demand for inflation hedges, like gold which means a rise in gold prices too.

Investors this week will be keeping a close eye on the minutes of May’s Federal Reserve meeting, to be released Wednesday, along with preliminary purchasing manager indexes in the euro zone. Geopolitics remains in focus as South Korea’s president visits Washington to discuss North Korea and Brexit negotiations resume in Brussels.

Has the golden streak ended

Gold was seen under pressure since the middle of last week and has continued this sentiment for the current week now, testing vital support ratios near the 1330.00 U.S Dollars per ounce level. The precious metal stumbled as the Dollar gained in forex against the other major currencies.

Gold prices fell $4.02 an ounce last Thursday, ending a four-day streak of gains, as geopolitical tensions eased and the dollar strengthened on the back of solid U.S. economic data. Gold failed to test the resistance at $1354 and was unable to break through it .As a result, prices broke below $1347.

In economic news, the Labor Department reported that the number of first-time applicants for jobless benefits fell last week for the third time in four weeks and the Federal Reserve Bank of Philadelphia said the index measuring manufacturing activity in the region climbed to 23.2 from 22.3 the prior month.

This strong news supported the US dollar which in turn created a downward pressure on the yellow metal. 

Also pressuring bullion, a U.S. central banker said the Federal Reserve should keep raising interest rates this year and next to keep the economy from overheating and financial stability risks from rising. Higher rates dent the appeal of non-interest yielding bullion while lifting the dollar, in which it is priced

U.S. interest rates futures fell on Friday as traders bet on a greater likelihood the Federal Reserve would raise key short-term borrowing costs three more times in 2018 in the wake of data that showed steady U.S. economic growth.               

Spot gold lost 0.6 percent at $1,336.96 per ounce by and was headed for a weekly decline of nearly 1 percent.

What’s funny is that over the past fortnight the main reason that pushed gold prices high the same reason was responsible for its downward movement last week, thanks to the easing out of geopolitical worries. Investors were less jittery about geopolitical tensions that had supported gold prices earlier in the week, notably Syria and North Korea.

U.S. President Donald Trump said on Sunday the North Korean nuclear crisis was a long way from being resolved, striking a cautious note a day after the North's pledge to end its nuclear tests raised hopes before planned summits with South Korea and the United States.             

Though the geopolitical crisis are still high, but it looks like their severity has declined over past few days and hence gold prices are lying lull.

Gold is often used as safe haven in times of uncertainty and any easing out of such situations will surely pull down gold further.

Gold prices eased on Friday and were on track to end the week lower as the dollar advanced on expectations of higher U.S. interest rates and market players grew a bit less worried about global political and security risks.

This negative sentiment has been forwarded in the current week too. Gold prices slipped to their lowest level in nearly two weeks on Monday as the dollar remained supported on the back of rising U.S. Treasury yields. 
 
Spot gold was down 0.1 percent at $1,333.20 per ounce during Mondays trading hours, after earlier touching its lowest since April 10 at $1,331.70. The dollar index, which measures the greenback against a basket of currencies, was up about 0.1 percent at 90.392.
           
Gold, however, does continue to show important support around 1323.00 U.S Dollars per ounce and if the commodity declines further, traders might look for reversals. But patience will be an important piece of the puzzle for market participants.

The chief investment strategist said that gold is an excellent asset to invest in this year, as it guards against sudden shocks and rising volatility, especially in light of all the trade-war fears rocking the markets. Folts added that his preference is gold-backed ETFs.

Investors have also been picking up on geopolitical risks and buying gold ETFs as security. Bloomberg reported last week that the popularity of gold-backed ETFs was at its highest level since 2013.

Tug of War for Gold

Till date, 2018 has been quite an interesting year for global financial markets. While the year started with the untying of the crypt currencies market, with the main assets falling by more than 50% and creating a huge wave of uncertainty across all asset class.

Following that, global financial markets started to fall, proving that the markets could drop even further

And when that was not enough, Trump flustered the financial markets by talking about tariffs to the Steel and Aluminium imports in a bid to protect local companies.

The Trump administration said that the tariffs would protect U.S. industry, but the dollar and Wall Street shares slumped as the plan sparked fears of a trade war and worries about its potentially negative impact on the world's largest economy.
 
This will definitely open doors to a new trade war across the globe. As past events have shown, trade wars are never beneficial to any country.

An announcement by President Donald Trump regarding intentions to levy steep tariffs on imported steel and aluminium sparked a substantial sell-off in broader equity markets with traders finding relief in perceived safety of Gold.

The move fuels concerns that retaliation from competing countries could instigate a global trade war.

Meanwhile, Federal Reserve Chairman Jerome Powell said on Thursday there was no evidence the U.S. economy is overheating, and labour markets may still have room to improve as the central bank sticks with a gradual pace of rate hikes.           

These consecutive evens have lead to a rise in the demand for the safe haven asset, thus pushing its prices high . Gold finally broke out of its Asian/early European session consolidation phase and spiked to fresh session tops in the last hour of the trading session on Friday.

A fresh wave of US Dollar selling interest, triggered by the US President Donald Trump's tweet on trade war, provided some lift to dollar-denominated commodities - like gold.

Adding to this, global risk aversion trade, as depicted by a sea of red across European equity markets, was further seen underpinning demand for traditional safe-haven assets and remained supportive of the precious metal's uptick.

Further, a goodish pickup in the US Treasury bond yields, amid growing speculations about faster Fed monetary policy tightening cycle, continued capping any strong gains for the non-yielding yellow metal.

This year, gold has traded within a narrow range. It has had a high of $1,365 and a low of $1300.  At the current price of $1307, gold has had a 50% retrenchment from its peak price of $1365. Ultimately, a combination of global risks and increased inflation may push the price higher.

After a busy week of economic data and hawkish commentary from Powell, there were only two reports on Friday. Revised University of Michigan Consumer Sentiment came in at 99.7, beating the 99.4 estimate, but coming in under the previous 99.9. Revised University of Michigan Inflation Expectations came in unchanged at 2.7%.

The focus now shifts to key central bank rate decisions next week from the RBA, BoC, BoJ and ECB with the release of the February U.S. Non-Farm Payroll figures (NFP) highlighting the economic docket.

 For gold, the importance will remain on the wage growth numbers coming Friday as the inflation outlook remains central focus for the Federal Reserve. As it stands, market participants are factoring three rate hikes this year, (starting with this month) and if the inflation picture improve expectations for higher rates may weigh on demand for gold which does not pay a dividend.

It is this pull and push war between interest rate expectations and the perceived threat of inflation / geological risk that has fueled four swings of more than 4% on either side over the past two months.
 The precious metals market would continue looking out for interest rates along with the dollar's movement. A stronger dollar and higher interest rates reduce demand for non-interest bearing gold as the metal becomes more expensive for holders of other currencies.
 
It would now be interesting to see if bulls are able to maintain their upper hand or the uptick is being sold into amid absent market moving economic releases from the US.
   

Sentiment Shift In The Market

Past week, we saw investors moving away from gold as sentiments shifted to bearish. A strong US economy and a strengthening dollar led to this shift. Investors were confident that the U.S economy is relatively strong and this made the stock markets go wild. Moreover Gold failed to attract investors fleeing from the biggest selloff in six years in global equities as U.S. Treasury yields rose to four-year highs.

Last Thursday, bullion was headed for a 1 percent weekly decline as it fell to a one-month low of $1,306.81 over expectations of a rate hike soon in 2018.

Investor’s expectations of rate hike were driven high by the following factors-
• unexpectedly low U.S. unemployment figures
• Signals from the U.S. Federal Reserve,
• and other data showing the country’s economy


As we all know that higher interest rates make gold less attractive to investors as a safe haven because it does not pay interest. Instead this time, investors treated the dollar as a safe haven.

A stronger dollar makes dollar-denominated bullion more expensive for users of other currencies.

The global market selloff, sparked by last Friday’s jump in Treasury yields, and bets that the United States could see at least three interest rate hikes in 2018 due to improving U.S. fundamentals have propelled the U.S. dollar in recent days

Gold prices made little headway Friday, seemingly digesting losses suffered earlier in the week. But at the start of the week, yellow metal got a bit of a boost, thanks to a weaker US dollar.

Gold prices rose on Monday, 12th Feb, as the dollar slipped, but gains are expected to be capped ahead of inflation data from the United States this week that could mean U.S. interest rates increase more quickly than expected.

The dollar slipped against a basket of six major currencies as a bounce in equity markets ended a strong run for the greenback, used by investors as a safe place to park assets in times of financial market volatility.

Spot gold was up 0.4 percent at $1,321.16 an ounce at 0940 GMT. It has fallen more than 3 percent since hitting a 17-month peak at $1,366.07 in January. U.S. gold futures rose 0.6 percent to $1,323.20 an ounce.

Worries about inflation in the United States surfaced after data this month showed jobs growth surged and wages rose, bolstering expectations that the U.S. labour market would hit full employment this year.

But investors still feel that the dollar will strengthen once the infrastructure spending plan will be unveiled by President Donald Trump.

If the markets are amply convinced that the scheme will deliver a potent boost US economic growth and push inflation upward, that is likely to inspire bets on a steeper Fed rate hike cycle. This will probably revive the greenback’s recovery, tarnishing the appeal of anti-fiat assets epitomized by gold.

Whatever the reasons for the shift change in market sentiment, from macro factors to algorithmic trading, these abrupt index plunges and the rise in volatility have spooked investors across the globe and have led to panic selling and active profit-taking. With a low volatility environment less certain than before, market consensus on ever-increasing stock prices may be beginning to unravel.

Where is Gold Heading To

AN upbeat U.S data and a strong dollar played key roles to pull down gold prices during the week. A lot was expected to happen over the number of data releases-

US employment report, ahead of that there is
• Data on Spanish unemployment,
• UK construction PMI
• EU PPI
• Italian CPI
• US data on factory orders
• University of Michigan consumer sentiment
• Inflation expectation.

Of these, markets remained focussed on U.S nonfarm payrolls data and gold seemed to be behaving reacting to this influential factor

An expectation of strong economic number coming in from US strengthened the dollar. Spot gold was down 0.3 percent at $1,345.22 an ounce as the dollar ticked up against the euro ahead of hotly anticipated U.S. non-farm payrolls data, which would further give fresh clues on the outlook for U.S. interest rates.

Stronger than expected numbers could shore up expectations for the Federal Reserve to press ahead with interest rates hikes this year thus increasing the opportunity cost of holding non-yielding bullion

The dollar rose 0.2 percent against the single currency in early trade, though it remained on track for a seventh straight weekly loss. Its early signs of strength pressured gold, which is priced in the U.S. unit. Once data was out, gold didn’t show that great reverse effect as expected.

 Gold ended the week little changed, after rising in six out of the last seven weeks and hitting its highest in 17 months last week at $1,366.07.

 Data released was as follows -   

• Nonfarm payrolls and unemployment rate- non-farm payrolls grew by 200,000 in January and the unemployment rate was 4.1 percent, while wages saw their biggest jump since the end of the Great Recession, the Bureau of Labour Statistics said in a closely watched report Friday.

• Hourly Earnings- More importantly, average hourly earnings increased 2.9 percent on an annualized basis, the best gain since the early days of the recovery in 2009. In addition to the solid payroll growth, average hourly earnings were up 0.3 percent for the month, matching estimates and reflecting an annualized gain of 2.9 percent. That was the best since mid-2009 as the two-year economic slump was coming to a close. However, the average work week fell two-tenths to 34.3 hours.

Within the jobs report, Wall Street and policymakers are watching wage numbers closely. While job gains have been solid and consistent, salary growth has been elusive. This report could change the narrative and might push the Fed to get more aggressive with interest rate hikes.

The Fed held interest rates unchanged after its latest policy meeting this week but raised its inflation outlook and flagged "further gradual" rate increases.           
 
During the December meeting, the Federal Reserve said that it expects that economic conditions “warrant gradual increases,” in the federal funds rate, and added that inflation declined in 2017 and was running below 2%.

Should the Federal Reserve reaffirm expectations for three rates hikes, bond yields could surge.
Some market participants warned, however, that the yellow metal may face a period of weakness as physical gold demand is expected to decline as seasonality is starting to fade ahead of the Chinese New Year.

With many other asset classes already at record price levels, there is a risk of corrections either while geopolitical developments unfold or as inflation and interest rates rise to the extent that investors take profits. Investors may well see gold as offering a relatively cheap safe haven while corrections unfold in other markets

Now gold has already broken above its 2017 high of $1357, as we had expected, before retreating over the past few days. It has now taken out some short-term support levels in the process, but the key support levels such as $1335 and $1325 are still intact, so the long-term technical bullish outlook remains in place for the time being. If we are going to see new highs for the year in the coming days, then gold will have to break back above those short-term broken levels, which are now acting as resistance. Among these, $1344/45 is an interesting level to watch today. If there’s acceptance above it then don’t be surprised to see gold go back above $1357 – the 2017 high – soon. And if gold were to get back to these levels then it would increase the probability of it reaching for liquidity that is resting above the 2016 high of $1375 next. On the flip side, if $1335 gives way first, then one will have to consider the bearish argument, more so if it also goes below $1325.