Markets wary of the war

Last week the yellow metal was all green over escalating tensions of the US China trade war. Early in the week, spot gold prices rose 1.1%, registering their best one-day percentage gain in nearly three months after China announced that it would impose retaliatory tariffs on a range of U.S. goods.
After Witnessing its biggest one day percentage loss in a month on Thursday, gold managed to stabilise at around $1286.27 an ounce.

Spot gold fell 0.8% on Thursday, its biggest one-day percentage decline in a month after risk sentiment improved.

Gold welcomed a series of key data, important numbers and crucial news over the week.

• The equities and dollar have boosted due to strong corporate earnings created pressure on gold as equities and dollar strengthened. A firm dollar, placed gold in the red marks. 
• Furthermore, U.S. stock indexes extended gains on upbeat earnings as well as robust economic data that underlined the strength of the domestic economy. Meanwhile, the dollar index hit a two-week high against a basket of currencies.
• The U.S. housing data showed home building increased more than expected in April, while unemployment benefits fell more than expected last week, pointing to sustained labor market strength that should underpin the economy.
• The pullback in risk aversion lifted treasury yields. The rise in yields underpinned the U.S. dollar.


Stronger dollar makes gold more expensive for holders of non-U.S. currency.
Meanwhile, Thursday’s fall in gold prices has worsened the technical picture for the metal. Gold is on its third negative trading day as it seesaws near $1276.50 ahead of the European open on Monday. Bullion traders were happy initially as reports concerning the geopolitical tensions between the US and Iran, coupled with the US-China trade pessimism was released.

Investors couldn’t take much leverage of the gains as markets alter shifted focus on Australia’s surprise election results and optimism surrounding the trade relationship between the US, Canada, and Mexico.

Continuing on last week’s sentiments, , Gold fell to a more than two-week low on Monday as investors preferred the safety of the dollar, with the currency underpinned by robust economic reports out of the United States, even as geopolitical risks and trade tensions persist.

Spot gold was steady at $1,277.86 an ounce during Monday’s trading session, having touched $1,273.22 for its lowest since May 3.
Some believe that the bullish trends have started hovering around gold. People have started diversifying their finance into equities and dollars. They are currently proving to be attractive modes of investments.

A strengthening dollar is creating pressure on gold, the dollar held strong over the following news-
• After strong U.S. housing data and a report pointing to lower unemployment helped the U.S. currency to mark its biggest weekly rise last week since early March.
• Renewed U.S.-China trade fears have also helped the dollar to mimic its trajectory from last year, when it was preferred to gold as a perceived safe-haven asset.
• Investment demand for gold failed to pick up. Even with geopolitical tensions, no safe-haven demand  emerged.

Gold will be an attractive safe-haven asset as rising trade tensions weaken the U.S. economy and drag down the U.S. dollar, according to a recent report from Morgan Stanley. U.S. President Donald Trump has until May 18 to decide whether he will impose a 25% tariff on car imports from the European Union. The deadline comes 90 days after the U.S. Commerce Department said in a study that auto imports pose a threat to American national security.

Apart from the current trade war there are some other factors that attract attention-

• Risk airing from the European Union economy
• Voting in the next crop of MEP’s
• OECD will probably downgrade its global economic outlook.
• The Fed might unnerve investors further by reiterating that hopes for a lifeline from monetary policy are almost certainly misplaced in the near term
• A speech from Chair Powell and minutes from May’s FOMC meeting will probably hammer home officials’ preference for a “wait-and-see” approach
•
Amongst all this, the trade war definitely acts as a wild card. Prices have proven to be responsive to the running commentary on negotiations from media outlets linked to the government in Beijing as well as US President Donald Trump’s Twitter account. Nonetheless any statement released from any side will run volatility waves into the market.

Gold declined but still a favorite

Since the turn of the century, the gold industry has experienced a roller coaster ride, with prices rising from $255 an ounce in 2001 to highs of $1,906 a decade later, before falling to $1,056 by December 2015. After a gap of almost 4 years, gold is being seen on the green path once again.

Lately, Gold prices have largely been stuck in a range of between $1,217 to $1,330. Though gold started the year on a positive note, last week it did witness a decline in prices.

The sentiments continued to flow in this week too. Gold prices slipped on Monday and they further slipped for a fourth straight session on Tuesday as recent upbeat economic data and signs that Washington and Beijing were making headway in a nearly year-long tariff skirmish boosted risk sentiment.

The main reason for the decline in gold prices were the data numbers coming in from world economies.

Pressures were created on gold as improved economic data came in from China. China reported better-than-expected credit and export figures last week that allayed concerns regarding the pace of economic growth.

• Coming to the U.S., the dollar held firm on Friday after strong U.S. labour and inflation data soothed concerns about the world’s largest economy. As we all know that dollar and gold are inversely related and hence a strengthening dollar pulled gold prices down.
• Furthermore, falling oil prices weighed on commodity-linked currencies such as the Canadian and Australian dollars.
• The number of Americans filing applications for unemployment benefits fell to a 49-1/2-year low last week, pointing to sustained labor market strength that could temper expectations of a sharp slowdown in economic growth.
• U.S. producer prices increased by the most in five months in March, but underlying wholesale inflation was tame.
• U.S. President Donald Trump on Thursday expressed a willingness to hold a third summit with North Korean leader Kim Jong Un but said in talks with South Korean President Moon Jae-in that Washington would leave sanctions in place on Pyongyang.
• European Union countries gave initial clearance on Thursday to start formal trade talks with the United States, EU sources said; a move designed but not guaranteed to smooth strained relations between the world’s two largest economies.
• The six-month delay of Britain’s exit from the European Union avoids the “terrible outcome” of a “no-deal” Brexit that would further pressure a slowing global economy but does nothing to lift uncertainty over the final outcome, the head of the International Monetary Fund said on Thursday
• Moreover, growing optimism over a US-China trade war resolution strengthened the dollar.
• Better economic conditions stoke investors to pivot towards equities that are interest-bearing assets, and shun the non-yielding bullion

But still gold is expected to perform better in the following months. Gold has been witnessing a great start in the current year and many market players believe that it will continue to do so in the near term-  mainly due to
• Concerns over global economy
• Geopolitical issues
• Federal Reserves less aggressive stance on interest rates. The view is that there won’t be any interest rate rises this year, which again will be supportive for the precious metals sector
• Global uncertainties
• Central bank buying
• US China trade war
• De dollarization

Gold is expected to garner safe-haven interest as investors look to protect themselves against an impending recession which might even push gold above $1400 an ounce by the second half of 2019.

Get ready to see Gold on a roller coaster ride

While in the domestic markets we saw jewellers preparing in full swing for Akshaya Tritiya, in the global markets we saw gold moving in full swing.

Jewellers are expecting 15-20 per cent increase in sales this Akshaya Tritiya, mainly on the back of positive market sentiment, stable prices and ongoing wedding season.

Apart from the auspicious occasion of Akshaya Tritiya the wedding season is also lined up for the month of April, May and June, which has raised the demand for gold further. As buyers expect further rise in gold prices, they have started making their purchases to avoid any further price rise.

Overall there is a positive sentiment in the market so a sales growth of 15-20 % is expected this Akshaya Tritiya.

Globally so far, gold has risen more than 3 percent this year, marked by international tensions and volatility in equities, but has yet to emerge from a tight trading range in the face of an expectation for rising U.S. interest rates.

Prices for gold this week rose to their highest levels since Jan. 25, as escalating tensions in Syria, U.S. sanctions on Russia and the U.S.-China trade stand-off weighed on global equities and the U.S. dollar index.

Gold's safe haven status was tested this week as Donald Trump's economic war threatened to turn into a shooting war, with a number of global spots getting hotter. Precious metal moved from a close of $1325.69 an ounce on April 5 to $1337.90 on April 12, dipping on Thursday after reaching a high of $1364.50 during Wednesday morning trading – the highest it's been since Feb. 14
So far, Gold has also outperformed all other precious metals this year.

The headlines this week have been full of escalations of continuing and new conflicts around the world. Here is a rundown-

Trade Wars- Countries over the world are now dependent on each other for exports and imports.
Many major American companies that are household names such as Starbucks (SBUX), Boeing (BA) and Apple (AAPL) rely on their exports (and imports) from China for a sizable portion of their overall sales and profits.

But the escalating trade war between China and US could hurt the revenues of these companies as each country is retaliating with its own harsh measures.

But there are news revolving in the markets that has China just recently launched a new $1.6 billion initiative called “Made in China 2025.”

This initiative would focus on an increase in research and development spending thus making China more self dependent which will further help companies to rely less on international technology and equipment. The more China buys internally, the less it will buy American products or need to export to the U.S.

That means it could shift its trade focus away from the U.S., while purchasing fewer American goods. All of that could hurt manufacturers in both countries and increase volatility into the share prices of companies involved.

Geopolitical- There is rising tensions on the geopolitical front as US is expected to attack Syria any moment now in response to the chemical attack against civilians last week. But Russia has warned that in this course if Russian military personnel are harmed in any manner then US should be ready to face “grave consequences"

Now that President Trump has John Bolton as his National Security Adviser, the geopolitical spot has increased even further. On Feb. 28, Bolton published an op-ed in the Wall Street Journal supporting a preemptive nuclear strike against North Korea.

On Wednesday Trump cranked up the threats, tweeting “Get ready Russia, because [missiles] will be coming, nice and new and 'smart'!” which caused the spike in the gold price. Later he appeared to open a window to a more peaceful solution, tweeting that “it could be soon or not so soon at all,” causing gold to lose its earlier momentum.

That gives us an insight into what policy recommendations President Trump might be provided with now.

Even the perceived threat of diplomatic fallout and rumors of a military response can elevate volatility. War games between the U.S. and North Korea would be expected recoil — and that would mean uncertainty over China’s response.

That would give greater rise to volatile conditions in trade, regional security and stability on the Peninsula. By isolating China — North Korea’s top economic partner and military alley — tensions would only escalate.

Needless to say, any armed conflict between two nuclear powers carries great potential risk. One single incident could trigger an escalating spiral.

US Political Risk- November will also bring along a lot of volatility and uncertainty as midterm elections are going to be held.

The U.S would be caught up in more political instability that will harm market stability which further raises concerns that markets are being left uncertain and pondering to guess what happens next?

The world has become a much more dangerous place in the last few weeks. Between competing naval exercises in the South China Sea, a chemical weapons attack in Syria, US and European sanctions on Russia, a likely showdown over the Iran nuclear deal, and a host of other (i.e. India v Pakistan) conflicts not even mentioned here, investors have reason to turn to safe-haven assets – and gold has benefited.

Threats of war are always factored into the safe-haven value of gold on any given day, but we may be witnessing a sea-change where it is difficult to imagine a return to any sense of normalcy anytime soon – especially given Trump's determination to put America's interests first despite ruffling a lot of feathers with both allies and adversaries.

Given these hotspots for the next three months or even further, we expect gold to move on a rollercoaster ride.

Bullions Attracts Investors

Dollar remained weak in spite of a strong economic data and gold was once again in demand acting a hedge tool against inflationary pressure.

Gold prices edged higher on Friday, heading for their biggest weekly percentage gain in nearly two years, buoyed by a weaker U.S. dollar and as investors looked to hedge against inflation.

After April 29, 2016, we saw gold rising more than 3 percent in a week. Spot gold was up 0.4 percent at $1,358.40 an ounce on Friday, after touching a three-week high of $1,360.
   
There was high demand for gold ahead of the Chinese New year. This rise demand along with a weak dollar pushed gold prices higher.

The dollar slipped to a three-year low against a basket of currencies on Friday, and was headed for its biggest weekly loss

in two years, as bearish factors offset support the U.S. currency could take from rising Treasury yields.

The important data released was     
• U.S. producer prices accelerated in January,
• There were strong gains in the cost of gasoline and healthcare.
• The Labour Department said its producer price index for final demand rose 0.4 percent last month after being unchanged in December.
• The Labour Department said initial claims for state unemployment benefits increased by 7,000 to a
• Seasonally adjusted 230,000 for the week ended Feb. 10.

Gold continues to carry its shine in the second month of the year. The spill over effect continued for gold in Feb as we saw the yellow metal gaining positive traction for the fifth consecutive session on Friday and moved within striking distance of multi-month tops, set in January.

Over the last couple of weeks, we have seen a lot of things happening globally. And the moist important was the stock market pullback that the world markets witnessed a couple of weeks back. This volatility kept investors focused on rising bond yields (inflation) and potential interest rate hikes.

There is a lot of uncertainty and volatility prevailing in the markets and one sectors that totally benefits with such a crisis is the commodities sectors, precisely bullions
And that the reason investors tend to divert their portfolio into safe havens- bonds and gold

 The yield on the 10-year US Treasury bill hit 2.88% and gold resisted its usual trend of moving inversely with the dollar by gaining six tenths of a percent to $1,345 an ounce.
Currently, after viewing the various markets, investors feel that the safes place to park your funds is the commodities markets. There are many reason that justify this thought-

Inflation
The higher the rate of inflation, or expectation of inflation, the more yields rise, because bond investors demand higher yields to be compensated for inflation risk.

Commodities can be the beneficiary of higher bond yields especially if long-term interest rates rise.


Weak US dollar 
Commodities are priced in US dollars, so there is a strong correlation between the strength of the dollar and commodities. A weak dollar plus a basket of currencies being strengthened on the other side, is making gold more attractive,

The USD has dropped in relation to other competing currencies, such as the euro, the pound and the yen. Rising inflation is also diminishing the value of the dollar is diminished. Moreover, uncertainty about US trade relationships has also weighed on the greenback.


Rising Demand but shortage in supply
Most of the gold market is driven by investment, but there are some interesting things happening that makes this a very good time to consider an investment in gold or gold stocks.

Simply put, the world is running out of gold, especially the stuff that’s high grade and easy to find, and this makes me bullish on the precious metal - irrespective of all the familiar demand factors like safe haven, inflation hedge and store of value.

Till 2014, commodities were not considered to be a real fund puller. Many kept away from the bullions as there were other options, like rising equities where investors ploughed their money. But now , that the precious metals are giving incredible returns and also proving to be safe haven assets, its time that investors start re thinking of parking their funds into this sectors that continues to gather momentum in 2018.

Is gold no longer being affected by a Rate Hike

Fed rate hike pulls down gold prices: No more an implied reaction for the yellow metal.
Though gold prices were flat in Wednesday ahead of the Fed meet, it managed to close higher. Initially gold prices dipped slightly after the U.S. Federal Reserve said it would keep interest rates the same, but expected inflation to rise this year.

On Fed Chair Janet Yellen’s last policy meeting as head of the central bank, the Fed left interest rates unchanged. But its message on inflation signaled it was on track to raise borrowing costs in March under incoming chief Jerome Powell.

History has shown that worries over inflation results in a rise in gold prices, which is seen as a safe haven asset against rising prices. But expectations that the Fed will raise interest rates to fight inflation make gold less attractive because it does not pay interest.

Moreover, stronger dollar pressures commodities priced in the currency, making them more expensive for buyers using other currencies. And this was exactly what happened on Wednesday.
The U.S. dollar turned positive after the Fed statement thus resulting in a dip in gold prices. But the effect wasn’t that severe as there were no significant announcements apart from just a hawking tint in the statement released by the Fed.

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.

What the market now await is two more rate hiked in 2018 , which if executed will pull down gold prices significantly.Till then we find gold in a comfortable zone, not paying much heed or reaction to a single rate hike.

Many competitors for gold in 2018

Gold began 2018 on a firm note on Tuesday after prices hit their highest in more than three months, supported by technical factors after breaking above $1,300 an ounce last week.

Spot gold rose 13 percent last year to mark its best annual performance since 2010. A wilting U.S. dollar, political tensions and receding concern over the impact of U.S. interest rate hikes fed the rally.
The greenback, in which gold is priced, had its worst performance since 2003 last year, damaged by tensions over North Korea, questions over Russian involvement in U.S. President Donald Trump’s election campaign, and persistently low U.S. inflation.

 The dollar’s drop to three-month lows versus a basket of currencies on Friday lifted gold to its highest since mid October. In the last couple of weeks, trade has been relatively thin, yields have been under pressure and the dollar as well, so gold has profited from that.

Preceding real yields, dollar is the most important driver for gold. And it was the dollar’s weakness, which even a Fed rate hike was unable to pull down gold prices. Even though the rates are hiking, the dollar I not benefiting from it.

On the other hand, Gold has clearly benefited from lower U.S. yields and a much weaker U.S. dollar into the year-end. Gold has risen more than $70 from nearly five-month lows hit in mid-December.
More than half of the $70 rally came in the last week, during the holiday period.

However, on Wednesday there was a slight halt to this rally as we saw the dollar strengthening over the release minutes of the FOMC meeting (that was geld on Dec 12-13)

The Fed’s minutes acknowledged the U.S. labor market’s solid gains and the expansion in economic activity, even as they affirmed policymakers’ worries about persistently low inflation. That suggested the central bank will continue to pursue a gradual approach in raising rates but could pick up the pace if inflation accelerates.

Fed officials also discussed the possibility that the Trump administration’s tax cuts or easy financial conditions could cause inflation pressures to rise, leading to some dollar-buying, analysts said
The dollar rallied on Wednesday on upbeat U.S. manufacturing and construction data and after minutes from the Federal Reserve’s last policy meeting showed the central bank remained on track to raise interest rates several times this year.

Snapping a three-week losing streak, the dollar hit session highs against the euro and yen after the minutes from the Fed’s Dec. 12-13 meeting. The dollar index posted its largest daily gain in more than two weeks.

Gold eased from an earlier 3-1/2 month high on Wednesday and was on track for its first day of losses in nearly three weeks as a firmer dollar pressured assets priced in the U.S. currency.

Currently, gold seems to rise steadily in 2018. There are many important competitors for gold that will surely play a significant role in its price movements-
• Equities- The biggest competition for gold in the New Year will be equities, but if gold prices continue to hover over $1,300 then investors would surely be interested in diversifying their portfolio towards the yellow metal.
• Bond yields- Another important factor for gold next year will be bond yields, but noting that he sees limited impact in the long-term.
• Inflation- With inflation expected to rise, that investors need to be more clear as to real interest rates will push higher or remain at current low levels.

Looking ahead, it is difficult to determine if gold will hold these holiday gains when traders come back in full force in the New Year.

Stronger dollar pulls down gold prices

But the metal still recorded its second consecutive weekly decline after the Federal Reserve on Wednesday reiterated that it expects to deliver another rise in interest rates by the end of the year.

Prices for the yellow metal dropped about 1.7 percentlast week, posting their second consecutive weekly decline.

Gold futures witnessed nominal gains, with heightened tension pegged to North Korea credited with providing a modicum of support to the haven.

Late Thursday, North Korean officials threatened to test a hydrogen bomb over the Pacific Ocean, escalating tensions in the Korean Peninsula. North Korea’s leader Kim Jong Un criticized President Donald Trump for remarks made during the U.S. leaders U.N. speech Tuesday, in which he threatened to “totally destroy” Pyongyang if provoked.

Gold prices would have crashed to $1,265.60 if North Korean risk didn’t resurface and would have taken prices back to levels last seen more than a month ago.

But the Fed, which indicated Wednesday that it still plans to raise rates once more by the end of the year, was the reason why gold prices fell.

The central bank also announced that a plan to unwind its more than $4 trillion balance sheet would commence in October. Both policy measures can have the effect of tightening monetary policy and raise rates. Higher rates in turn can make gold, which doesn’t bear a yield, less attractive compared with assets with rising yields.

Gold opened lower in early Asian tradin as weekend uncertainty passed without incident. Merkel’s win in the German federal elections and a quiet news weekend on the North Korean front, saw the US dollar opening stronger and gold’s weekend safe-haven premium eroded from Friday

The spot gold price fell during Asian morning trading hours on Monday September 25, as the dollar strengthened and a quiet weekend on the North Korean front saw a further deterioration in any risk-off sentiment.

Gold prices dropped on Monday, andhovered around one-month lows hit last week, weighed down by afirm U.S. dollar and as concerns over the Korean crisis easedover the weekend.

Merkel's win in the German federal elections and a quietnews weekend on the North Korean front, saw the U.S. dollaropening stronger and gold's weekend safe-haven premium erodedfrom Friday.

The euro slipped on Monday after German Chancellor AngelaMerkel won a fourth term in a weekend election, but facedleading a much less stable coalition in a fractured parliamentas support for the far-right party surged.                    

Last week, the Fed announced it would begin trimming down its $4.5 trillion in assets and signalled it will likely raise rates again this year. With the market increasingly expecting another US rates rise by year-end, this should continue to lend support to the dollar tis pushing down gold prices further.