Gold ticked higher on Monday as a retreat in the dollar made bullion more attractive for other currency holders, drawing further support from some safe-haven demand from China amid wide protests over its strict COVID-19 curbs.
“The US markets fell on Monday post the sudden hawkish comments released by the Fed and also the ongoing unrest in China. But on Tuesday morning there were reports that China State Council will have a press conference to hopefully call off the zero Covid policy.” shared the Bullion King. This created a direct and positive impact on Hong Kong and Shanghai markets. If the China COVID situation does not come under control and the crisis gets worse then it could be positive for the gold market.
“On one hand, we have the escalating crisis in China and on the other hand we have hawkish Fed comments. Both these are acting as opposite drivers for the yellow metal. Gold prices slipped from a more than one-week high on Monday, as the dollar rose from session lows on hawkish comments from members of the U.S. Federal Reserve reiterating their fight against inflation.” Added Bullion King of India.
Various members of the Federal Reserve have been extremely vocal about upcoming interest rate hikes. One of the more hawkish Federal Reserve members is the St. Louis Fed President James Bullard.
Last week he commented on the need for the Federal Reserve’s benchmark rate to go as high as 7% to deal with lowering inflation. This week speaking to Greg Robb an editor at Market Watch when asked a question about how long expects the fed funds rate will need to remain in the 5% to 7% range, he said that “the Federal Reserve will likely need to keep its benchmark policy rate north of 5% for most of 2023 and into 2024 to succeed in taming inflation.
According to Prithviraj Kothari, Managing Director of Riddhisiddhi Bullion Ltd (RSBL), “Spot gold last fell 0.86% to $1,740.557 per ounce, after hitting its highest since Nov. 18 earlier in the day. U.S. gold futures settled down 0.8% at $1,740.3. The dollar turned positive after falling to a near two-week low earlier in the session. A stronger dollar makes greenback-priced metals more expensive for other currency holders.”
Fed Presidents James Bullard and John Williams stated that there was a long way to go to fight inflation, with Bullard stating that rates should be held high “throughout next year and into 2024.”
But a very strange or rather bizarre trend being witnessed in some of the leading economies (excluding the US) is the reduced dollar dependency. This has been highlighted even more post the Russian –Ukraine War. West sanctions against Russia are backfiring, particularly fir the US dollar, which is slowly but surely losing its grip on global dominance.
After witnessing western nations unilaterally freeze Russia’s foreign assets in response to Moscow’s military operation in Ukraine, central banks have been boosting their gold reserves so the same thing doesn’t happen to them should Washington suddenly turn unfriendly. Over $300 billion of Russian foreign reserves— not including assets owned by businesses and individuals— were frozen by the Biden administration and other western allies
China and Russia ally with the former closely associated with the World Economic Forum, whose plans to implement the Chinese social credit system globally are well advanced. On the other hand, social unrest, inflation, disrupted the supply chain and food supplies etc have created pressure on the dollar and its importance as a world currency has depleted.
If this continues to happen, the U.S. will no longer be able to exchange piles of intrinsically worthless paper for the goods and services produced by the rest of the world and will rapidly become a banana republic, kind of like Haiti but without the mild winter climate. China and Russia have been moving toward this goal for many years, which is why they have been accumulating vast quantities of gold at knockdown prices in preparation for the day when they will launch a gold-backed currency that will see the dollar might lose its significant hold at astonishing speed.
They have been waiting for the right moment, and with the Fed doubling the number of dollars in existence every few years now, that time is believed to have arrived. The imminence of this may explain why the dollar tanked this month.
But this data is not supported by strong evidence and we can do nothing but wait for concrete facts. Meanwhile, some important data coming up-
Jerome Powell is due to speak at a Brookings Institution event on Wednesday, on the outlook for the U.S. economy and the labour market
U.S. non-farm payroll data for November is due on Friday, which might shift expectations around the Fed’s policy move in December. Traders currently anticipating a 50-basis-point rate hike.
Keeping fingers crossed, we hope global markets end 2022 on a positive note, thus benefiting the max.