Gold benefits from equity slide

Reserves Reserves Reserves - it was all about piling up gold in the past week. And when I Say piling I mean in huge numbers.

Peoples Bank China shocked the world when it’s released the figures of gold reserves that it sits on.  China's gold reserves had been steady at 59.240 million fine troy ounces from October 2016 to November 2018, according to data from the People’s Bank of China, and suddenly jumped to 59.560 million fine troy ounces at end-December.

The People’s Bank of China increased holdings to 59.56 million ounces by the end of December, or about 1,853 metric tons, from 59.24 million ounces previously, according to data on the central bank’s website. They had been unchanged since about 130,000 ounces were added in October 2016.
China has long been wanting to reduce its dependency on the US dollar. The ongoing trade war is threatening its economic growth.

Several large emerging economies, which today fuel most of global growth prospects, and major oil exporters, are intrigued by the idea of re-coupling gold with a multilateral currency basket to avoid excessive exposure to US dollar-denominated energy and commodity markets.

 Spot gold had its strongest month in almost two years as those fears spurred a whirlpool in equities and the dollar and boosted demand for the precious metal as a haven. And hence the world’s biggest producer and consumer boosted holdings of bullion.

But it was not an overnight thing. China has been piling reserves since quite some time. It had last released the figures in 2016 and now suddenly. And it’s not just China that has been doing this.  As Bloomberg reports, Poland and Hungary surprised the market in 2018 by adding to their gold holdings for the first time in many years.

Furthermore, there have been interesting shifts in gold reserves. While advanced economies, such as the US and Germany, still own most global gold reserves, the US has increased its gold holdings in the past decade only marginally, while Germany has been forced to cut its reserves. In contrast, China has tripled its reserves, while Russia has nearly quintupled its gold (after dumping billions of US Treasuries), despite rounds of sanctions.

Fresh comments coming in from Federal Reserve Chairman Jerome Powell on Friday, got in a fresh rally in gold prices. The statements released boosted the chances that the central bank will pause interest-rate increases. Speculation that the Federal Reserve may pause its interest rate hikes has given further strength to gold’s rally into the new year and assets in bullion-backed exchange-traded funds are at a seven-month high. Spot gold was trading 0.5 percent higher at $1,291.83 an ounce as the week ended. Strengthening of the yellow metal has further weakened the greenback.

Gold was out of favour for much of 2018 as a result of the strong dollar and interest rate increases in the US. The precious metal traded as low as $1,174 an ounce in August, despite rising geopolitical tensions.

However, sentiment began to improve towards the end of the year, as volatility increased further and US stocks suffered.

THOSE analysts who believe that fear has made a comeback argue that gold is benefiting as equities slide and investors are increasingly concerned about the economic prospects of the United States (US), China, Europe and Japan. Yet, even at $1,290, gold still remains more than 30 percent behind its all-time high of $1,898 in September 2011 amid the US debt-limit crisis.

Gold - A hedge tool against market risks

Last week gold witnessed a lot of volatility in the market but not much uptrend. It repeatedly failed to penetrate the resistance level of $1302 an ounce. And by the end of the week gold was expected to take a huge leap provided the US nonfarm payrolls data would have been way beyond expectations.
But nothing like that happened. In fact gold dampened post the data release.

Gold settled back below $1,300 an ounce on Friday, as upbeat monthly U.S. employment data buoyed the dollar and suggested that the Federal Reserve remains on track to raise interest rates later this month and later this year.

Relative calm also returned to Italian politics, a move also seen helping to pave the way for U.S. action on rates.

Data released on Friday showed that
• the U.S. created 223,000 new jobs in May,
• Unemployment was down to an 18-year low of 3.8%.
• Institute for Supply Management’s manufacturing index rose to 58.7%, up 1.4 percentage points from April and a two-month high.

Gold was pressured downwards due to
• Great job numbers
• lower unemployment rate
• increased labor participation rate
• ISM


This data can further help and support Fed officials to hike the interest rates again in June and further keep them on a gradual hiking place.

Rising real interest rates impact the opportunity costs of holding gold because the metal provides no yield, and entice investors to rotate into riskier assets like stocks. Higher rates may also boost the value of the dollar which usually moves in the opposite direction of the gold price.

Market players had expected European geopolitical tensions to influence gold prices and pull it across the $1300 mark, but it seems that gold will be having a tough time to scale that point.
Apart from the US data and other issues, gold is also being influenced by other global issues.
There is currently a wave of populism riding in Italy that is sure to bring more volatility to the markets, and with financial unrest comes a surge in gold.

Italy is experiencing a contagion problem around the build-up of debt that originated with the 2010 debt crisis.

In 2010, the concern was that most of the bad loans in Italy and Spain were owned by French and German banks, and the E.U. since then has escalated by 300% owning these bad performing loans," he said.

Mounting non-performing loans mean that credit default swaps may rise, and banks may opt to buy gold bullion as a hedge against market risks.

History says that trying to trade gold bullion as a political or short-term ‘safe haven’ is unlikely to pay. Smarter traders have in fact gone the other way over recent months, selling when the headlines screamed crisis and buying back when prices then eased. Or take the long view, and use gold to balance the risk of extended falls in the stock market.

It isn’t guaranteed to work. But that is how things have tended to play out for the ‘safe haven’ metal.

Rally vs Regression for Gold

It was a decent week for gold as it was up 0.6 per cent on Friday posting a second straight weekly gain.

Gold rose on Friday as the dollar softened on uncertainty about the progress of what would be the biggest overhaul of U.S. taxes since the 1980s.

The U.S. House of Representatives approved on Thursday a package of tax cuts, while a Senate panel advanced its version of the legislation that has President Donald Trump’s backing. The dollar weakened against a basket of six major currencies and was set for its biggest weekly loss in more than a month.

An exhaustion of the equity market is proving to be supportive for gold in the near future.
Though the week ended on a positive note, Monday blues were creating its effect on gold.Gold drifted lower through the early European session on Monday and eroded part of Friday's strong up-move to one-month tops.

Gold eased on Monday due to a stronger U.S. dollar, but remained near a one-month high hit in the previous session on uncertainty over progress on a potential overhaul of the U.S. tax code.

Currently trading around the $1290 region, testing session lows, a modest pickup in the US Dollar demand seems to have prompted some profit-taking off dollar-denominated commodities - like gold.

However,following factors we seen triggering a fresh wave of risk aversion trade in the market-
Breakdown in German coalition talks- The dollar index, which tracks the greenback against a basket of six rival currencies, gained 0.2 percent as the euro faltered after German Chancellor Angela Merkel’s efforts to form a three-way coalition government failed, raising concerns over political uncertainty in the euro zone’s largest economy.

Sliding US Treasury bond yields- The latest US political jitter from subpoenas on Trump campaign staff and skepticism over the passage of a historic US tax cut legislation might continue to lend support and help limit deeper losses, at least for the time being.

These factors combined have underpinned the precious metal's safe-haven appeal.

Currently gold is once again been pulled between bullish and bearish markets.A little bit of momentum is sneaking in this market and, a little bit of volatility is slinking up in other financial markets.

If we see the ear market for gold , we can support a price drop keeping in mind the US interest rates, higher US interest rates with the target range for the Fed Fund rate likely to be moved up by 0.25% to 1.25%-1.50% at the next Federal Reserve meeting on December 13.  US interest rates are also expected to be hiked another three times next year, adding more downside pressure on gold.

On the other hand, a strong bull market is supported by the fact that Gold is starting to regain its safe-haven shine as political upheaval increases and investors become more risk-averse. Venezuela is on the verge of default after missing payments on sovereign debt and bonds issued by the state-owned oil firm PDVSA, while Zimbabwe is gripped by yet another political crisis after President Robert Mugabe was placed under military custody while the army took control of the streets of Harare.

And in a sign that investors are starting to pare back on risk, investors are shunning high-yield bonds.

In absence of any major market moving economic releases, investors would keep a close eye on the US tax reform developments. Meanwhile, broader market risk sentiment and the USD price dynamics would remain key determinants of the commodity's movement at the start of a new trading week.

2017 - SURPRISES TO UNFOLD FOR GOLD : RSBL

Until Wednesday last week, gold was trading in positive territory continuing the rally from the previous session.

The spot gold price was quoted at $1,164.85/1,165.15 per oz, up $8.05 on the previous close.

There were many supporting factors for gold’s rally-

• Mainly all the uncertainty that lies ahead with the changeover in the US administration 
• Brexit 
• The weakening trend in the yuan. 

On Friday last week, gold slipped following the release of strong US employment data which was as follows-

• The USA added 156,000 jobs in December, compared with 204,000 in November, while wages grew 2.9% year-on-year to reach a seven-year high.
• German industrial production climbed 0.4%, which was down from the 0.7% expected, while the country’s trade balance climbed more than expected. 
• The non-farm employment change for December showed 156,000 Americans entered the workforce, a slight miss from the 175,000 forecast.
• However, the figure for the previous month was revised up 19,000 jobs and the headline unemployment figure came in as expected at 4.7%.
• The big surprise was that average hourly earnings grew by 0.4% month-on-month, bringing total wage growth to 2.9% for the year and the highest level since before the recession.

Gold prices were in positive territory in London on the morning of Monday January 9, recovering slightly from last week’s drop.

The spot gold price was recently quoted at $1,176.20/1,176.50 per oz, up $3.40 on the previous close. Trade has ranged from $1,172.50 to $1,178.75. Gold prices edged up in a technical rebound on Monday after one-month highs hit last week were undercut by the prospects of more interest rate hikes from the US Federal Reserve.

US employment increased less than expected in December but a rebound in wages pointed to sustained labour market momentum that sets up the economy for stronger growth and the prospect of further interest rate increases this year.

Chicago Federal Reserve President Charles Evans said on Friday the central bank could raise interest rates three times this year, faster than he had expected just a few months ago.

Evans and other regional Fed presidents are scheduled to speak this week, and the outlook for U.S. rates may become even clearer when Chair Janet Yellen appears at a webcast town hall meeting with educators on Thursday.

Expectations of US interest rate hikes lowers demand for the non-interest-paying bullion.
Apart from a rate hike the most discussed r rather the most awaited topic currently is the fiscal stimulus that Trump is promising and, of course, inflation.

Despite the rebound in the dollar, gold prices are holding up well – all thanks to the safe haven move by investors, just ahead of the shift in US administration.

By the end of 2016 or rather post the 2016 US election, confidence in the global markets was running high thus propelling gold to lose its safe haven appeal. But 2017 has lot of uncertainties and surprises to unfold for gold which will once again get into the investors basket keeping in the mind its appeal as a safe haven asset in times of global uncertainties.

In the week ahead, investors will be looking ahead to US economic reports, particularly Friday’s retail sales figures for December. Investors will also be watching an appearance by Fed Chair Janet Yellen on Thursday and speeches by a handful of other Fed officials during the week, as well as President-elect Donald Trump on Wednesday for a press conference.

Now investors await the upcoming inauguration of President-elect Donald Trump to see what the volatile leader will implement once in office.