Gold being pulled between bulls and bears

Lately, gold has shown a typically consistent price pattern. It has witnessed a lot of pull and push in the trade range. It generally starts on a negative note, recovers and is pulled down again. So it’s a wave like movement, which leaves the markets perplexed over its behavior.

It’s difficult for market players to project or analyse the markets for gold- whether it’s bullish or bearish. This has been going on for quite some days now. As gold moves up and the market expects it to cross the key levels. Something contradictory happens and the yellow metal starts trading negative again.

The classic example of this would be the recent Federal Open Market Committee meeting on July 31/August 1.

 The U.S. Fed chair Jerome Powell’s statement on the U.S. economy and likely Fed interest rate policy for the remainder of the year strengthened the dollar and pushed gold’s trading range back around $20.

When the data released was not par expectations, gold did manage to trade high, but then was pulled down over rate hike expectations.

So right now the market is divided in to groups. This that want the yellow metal to fall below $1200 and those that would like gold to strengthen and cross $1400. So there is a kinda tug of war between the $1200- $1400 trade range.

In the short, probably in the coming month gold looks negative. It might be down. But is soon expected to gain momentum as we the onset of the festive season in India which will mark a rise in demand for gold. Apart from this, equities look weak and markets might shift to gold as an alternative investment.

One more important thing that will contribute to these rising prices is bitcoins. After the much hype surrounding this investment option, it’s not being welcomes by the parties that are suspicious about its future.

Coming to our main point of discussion, Will gold stick to the bears market or is it expected to enter the bulls. Well it depends on the following factors-

• Markets returning to trade after U.S. Labor Day Holiday
• Dollar
• Chinese import tariffs laid by the U.S and reaction/actions of the Chinese government
• U.S inflation
• Fed policies
• ECB
• Russia’s market volatility

Gold, too, has historically had a role as a haven asset in times of global market turbulence. Now, Financial markets continue to watch for any evidence that might knock the Fed off its projected path to raise interest rates twice more this year and three times next year. Apart from that any global uncertainty is expected will be welcomed by the bull supporters for gold. Markets also await the onset of the festive season in India, which will see a rise in the demand for the yellow and thus push up gold prices further. So currently along with the US economy happenings, a lot of global factors will also play a key role in influencing gold prices. Any sudden event can boost the yellow metal high towards the end of 2018.

Markets seem difficult to trade

After weeks of relative stagnation, gold traders were suddenly awoken to a rise in trade volume and price volatility. In a span of one minute, gold futures contracts equaling more than 2 million ounces traded -- about 20 minutes before Federal Reserve Chair Janet Yellen was to address a gathering of policy makers in Jackson Hole, Wyoming.

The occurrence shook the market after a measure of 60-day volatility on the metal touched the lowest since 2005.

 Gold had been lying stable amid political disharmony in Washington, worries about rising U.S. interest rates and escalating geopolitical tensions between the U.S. and North Korea.

Investors were not expecting Yellen to make a policy statement anyway, but some market participants were hoping for some signal on the Fed's planned balance sheet reduction, if not on the outlook for U.S. interest rate hikes.

Yellen’s speech, which lacked clear rate cues, did little to calm the price swings and damped expectations of a rate hike this year.

Federal Reserve Bank of Dallas President Robert Kaplan helped fuel the sharp move before Yellen’s speech Friday by saying the central bank can afford to be patient on raising interest rates even while noting it should shrink the balance sheet soon.

These comments were dovish and pushed gold prices higher. But then when Yellen didn’t mention monetary policy, things started to stabilize again.

The dollar fell to a three-week low against the euro and a one-week trough versus the yen on Friday after Federal Reserve Chair Janet Yellen made no reference to U.S. monetary policy in her speech at the annual central bank research conference in Jackson Hole, Wyoming.

Instead, Yellen focused on U.S. regulations, saying those put in place after the 2007-2009 crises had strengthened the financial system without impeding economic growth, and any future changes should remain modest.

Dollar had weakened because Yellen "didn't say anything positive for the U.S."

The dollar has been trading higher for most of the week after sharp losses in recent months.

The dollar fell to a one-week low of 109.23 yen after Yellen's speech. It was last down 0.2 percent at 109.33.

The euro, meanwhile, hit a three-week high against the dollar and was last up 0.6 percent at $1.1862.
Focus now shifts to the coming week wherein a few interesting events are lined up.
The yellow metal may remain range-bound in the $1,290s ahead of the U.S. Labor Day holiday on September 4th.

Labor Day can mark a variation point in various economic parameters, including the gold price.  There are also U.S. Fed and ECB policy meetings that will be held in the second half of September and the U.S. FOMC one in particular will be viewed with particular interest vis-à-vis gold given observers will be looking for clues on the likely date for the next interest rate rise decision and/or Fed balance sheet reductions.  The U.S. economy is not showing positive developments as well as forecast by the Fed so there are some who believe any rate increase will now likely be put off until next year.

The period that lies between the Labour Day and The FOMC meeting will be crucial for gold as the markets reactions all depend on this interim period.

Market reaction after Labor Day, and before the FOMC meeting will probably see gold react positively or negatively to economic data (fact or supposition)  coming out in the interim, which may hold gold back from bursting through $1,300, which it would likely do if the FOMC looks like delaying any interest rate rise decision beyond the calendar year end.  An indication that the Fed will indeed continue its tightening programme in December may pull down the gold price , but perhaps not affect its on-going progress in the medium term.

Similarly the ECB policy meeting in Frankfurt, which comes just after the FOMC meeting, will also be followed with strong interest, but may not see any further tightening while the Euro remains at current levels against the dollar.

We still see gold rising through $1,300 and perhaps hitting $1,350 by the year-end, but sometimes Q4 can prove to be a weak period for precious metals, so we are not wholly confident on this prediction.  Currently markets seem difficult to trade!