When some people just started writing off gold last week stating that it was a bubble, the yellow metal once again proved its opposition wrong.
Though gold consolidated in a narrow range of $1528 to $1493 till Thursday, it did manage to pop up on Friday.
Gold has risen nearly 8% so far this month and about 19% this year, and was set for a fourth straight week of gains.
Gold prices rose by 2% on Friday as investors construed U.S. Federal Reserve Chair Jerome Powell’s speech as leaning toward a dovish monetary policy stance and President Donald Trump’s latest comments exacerbated trade tensions with China.
Powell said the U.S. economy is in a “favourable place,” but gave few clues about interest rate cuts at its next meeting. However, he listed a series of economic and geopolitical risks the Fed is monitoring, noting these were linked to the trade spat.
Spot gold rose 1.9% at $1,526.60 an ounce on Friday, shaking off slight headwinds ahead of the Fed Chair’s speech.
Prices earlier rose to $1,528.79, the highest since Aug. 13, when spot gold had scaled a six-year peak of $1,534.31.
Contradicting to the price rise, data released showed that US jobless claims dropped 12,000 to seasonally adjusted 209000 for the week ended on Aug 17. The IHS Market Flash Purchasing Managers Index came at 49.9 below 50 levels for the first time since Sep 2009. The yellow metal hits an intraday low of $1493.44 and is currently trading around $1495.99.
Markets were eyeing US Fed Chair Powell's speech in Jackson's hole symposium for further direction.
Some early comments revealed that FED is going to be dovish but not outright one and the rate cut won’t be on accelerated mode.
The US 28.10y yield inversions are the real headache for economists whether or not the recession is coming now.
But the real culprit might be the USD-CNY i.e. Yuan on its depreciating fast and sooner it would be bringing more uncertainty and uncertainties are the best time to put money into gold.
Trump tweeted on 21st August that he is hoping a china deal. Fed minutes revealed all expected scenario and two of the members of the Fed actual wanted. 50% rate cut and finally did.25% last month and overall commentary was dovish and more centred around global economic weakness. Trump also ratcheted up the rhetoric on China, ordering U.S. companies to look at ways to close operations in the country, which sent equities tumbling and drove further inflows into safe-haven gold.
This came after China unveiled retaliatory tariffs against about $75 billion worth of U.S. goods.
The fact that Powell said that they (the Fed) will act appropriately to sustain expansion is pretty bullish for gold. The two primary tools they have are quantitative easing (QE) or lower rates - both those tools will cause gold to go higher
Powell’s speech prompted a backlash from Trump on Twitter, asking whether the Fed chair was a greater “enemy” than China’s leader Xi Jinping.
In normal times, investors need lower prices to persuade them to park their money for ten years, but when trouble is brewing, they are prepared to pay more for a secure long-term home for their cash.
Conventional thinking has it that gold, along with other “hard assets” such as real estate, flourishes when an economic boom, with attendant inflation, is driving investors and traders away from conventional securities such as cash, stocks and bonds and towards investments likely to hold their value.
There are three reasons why we believe that now is the right time to think about increasing gold exposure.
The first would be that broad market valuations are high, which would suggest that equity returns over the next decade could be lower than in the past decade. Historically, that has often coincided with strong returns for gold and gold equities.
Secondly, the case for the US dollar over the coming decade is weak. Primarily, this is the function of very large US deficits. Again, when the dollar is weak historically gold has performed well.
Finally, the most important; there are global macro policy risks. These are as likely today as at any point since the Second World War and the cause of that are record-high global debt burdens.
The risk here is that macro policy responses could continue to be unconventional and potentially become more extreme, driving real interest rates very low or even negative.
So as per our Managing Director Prithviraj Kothari's opinion, gold seems to be the best option to park your funds.
