Play Cautiously and Take Utmost Care While Trading

Gold prices have risen nearly 16% this year, and by around $ 100 an ounce this week, as investors turned to the precious metal seen as a safe haven amid the bruising US-China trade and currency war.

As the week opened, PBOC of China fixed Yuan at 6.97% against the dollar and Trump and US Fed commented that China is acting as a currency manipulator. As mentioned previously that whatever Trump has done against China in its history is the worst trade war of this decade. There was obvious that pain boomeranged into the US markets and Dow slipped nearly 750 points on Monday- the worst single-day fall of 2019. And big time sufferers are US companies and global economies as they are on the verge of recession.

Gold hit $1485 and that was a major target that I made clear over the time and now this parabolic rise should stop unless China does something nasty to un-nerve.

The dimming global economic outlook, fuelled by heightening trade tensions between the U.S. and China are boosting gold’s appeal as a hedge against financial turmoil.

Gold is likely to show higher volatility and now overall range is expected to be $1500-$1550.

Despite Chinas commitment, the PBOC fixed Yuan at a higher level and fixed USD/CNY at 7.05% on Wednesday. Gold is once again moving to new calendar year highs and it hit $15 higher. Now gold is also behaving like currency when there is a losing streak for USD as the global currency status. These are extraordinary times and no matter how the USD index or the US data comes out, there is next big leg of rally possible on both.

On Thursday, gold showed an intraday volatility of +3%. This kind of fluctuation exhibited in the global markets too. Meanwhile gold hit 5.5 years high of %1522 and also made the single biggest gain of 3 years at 17.25. Moreover, the US-China trade war has been intensifying in a slightly uglier manner and this is adding fuel to the rally in gold prices.

Gold is at a record-breaking high in the domestic markets too. Gold prices on Thursday soared past the Rs 38,000-mark for or the first time rising Rs 550 to hit a fresh high of  Rs 38,470 per 10gm here in the capital.  In Mumbai, agency reports pegged the price of 10gm of standard gold (99.5 purity) at Rs 37,091, while pure gold (99.9 purity) cost Rs 37,240 on Thursday.

Gold remains relevant given the elevated economic and geopolitical risks. Investors will continue to shift their strategic portfolio positions in favor of gold. But Our Managing Director, Prithviraj Kothari advises all the investors to play cautiously and take utmost care while trading in these high volatile patterns.

Be Vigilant to Be Ahead

With even a minor drop in gold prices, many players in the market start doubting gold’s rally and raise questions about the gold bubble. Similar things happened this week.

Initially, gold was pulled down. Mario Draghi positioned up a September easing package but that wasn’t enough for the gold market. It hit $1433 after the initial ECB statement but the lack of action resulted in a drop in gold prices as it was down by $9 to $1416.

The ECB left interest rates unchanged at its meeting on Thursday, but its President Mario Draghi signaled that the bank was prepared to cut rates in September.

Market participants are now looking forward to the U.S. central bank’s monetary policy meeting, where it is expected to trim its interest rate by at least 25 basis points.

President Trump stressed his point to US Fed to do a sharp interest rate cut, rather his recently appointed member Shelton advocated for 50bps cut.

U.S. GDP data, which is due on Friday, is expected to show that U.S. economic growth slowed to 1.8% in the second quarter from 3.1% in the previous quarter.

If markets decide that the Trump administration’s commitment to the strong dollar is under review, investors are likely to sell the US dollar hard, including versus gold.

Furthermore, China added more gold to its foreign reserves in June, for the seventh month in succession. In fact, it is not the only country that’s piling up gold.  In 2018 alone, central banks bought 651 tonnes of gold, up 74 percent compared to 2017 and the highest level since 1971. Over the past decade, central banks have purchased more than 4,300 tonnes of gold, taking their total holdings to around 34,000 tonnes today. The trend has continued in 2019, with net purchases reaching 90 tonnes before the end of the first quarter

Central bank purchases of gold are no guarantee that gold prices will rise but they indicate to the wider investing community the underlying and potentially price-supportive demand for the precious metal. Also, historically, a rise in international tensions has proven somewhat supportive of the gold price, and there is certainly no shortage of that at the moment.

A lot of fuel is expected to be added to keep gold supported. Given the ongoing tensions in the Gulf, the various trade disputes and other geopolitical uncertainties, Prithviraj Kothari expects gold prices to strengthen further.

Gold traders should place stop at $1409.5 (i.e. breaking this will straight-pull it down to $1400) be vigilant. Buy at $1414 for targets $1422-$1425 at most towards advance GDP data. 

Market 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 signaling 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 behavior as the adjustments to the Summary of Economic Projections (SEP) fuel betted 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 the Powell’s Speech on 25^th June, and he said that an emergency is not beyond the realm for the 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 favorable 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 a 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 stabilized 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 dovish view has to be maintained by FED and that’s the reason that gold cannot be bought at $1405-$1425. Our Managing Director Prithviraj Chauhan known as The Bullion King of India has advised markets to wait for more stability and clarity on the global economic front.

Weekly Gold Forecast

The week began on a silent note for precious metals. Gold was up +0.1% which probably reflects a lull in the haven demand as investors appear risk-on at the beginning of the week. It was strange to see that demand for the yellow metal wasn’t much despite of the on-going geopolitical tensions.

OVER THE WEEKEND, North Korean leader Kim Jong-un warned of a second “Korean War” as US- South Korea military exercises, viewed as “reckless behavior” by the North Korean leader. But reactions in the market were contradictory as the market layers stayed calm. Hence the news which could have had strongly pushed gold prices further proved to be non-influential for gold.

After a firm price movement on Monday, precious metals were more or less stable on Tuesday morns. Spot gold prices were down by 0.2% at $1287.90.

On Wednesday, Gold prices edged slightly higher after news that sales of new U.S. single-family homes fell by 9.4% in July to a seasonally adjusted and annualized pace of 571,000, which was below forecasts.

Consensus estimates compiled by various news organizations called for sales to be around 610,000 to 620,000. The Commerce Department revised sales for June upward to 630,000 from the originally reported 610,000.

Apart from the geo political tension, the focus now shifts on host of global economic data that will be released throughout the week