Gold has rallied in 2019, rising to the highest level in six years, as investors contemplate slowing economic growth, prospects for easier monetary policy in the U.S. and Europe and stale trade frictions.
The upswing has been adding momentum as central banks, including authorities in Russia and China, step up purchases. Piling gold reserves has given a push to gold prices.
The surge in the yellow metal’s prices has been fuelled by a number of factors including mounting geopolitical tensions in the Middle East, the continued trade war between the United States and China, and downward pressure on interest rates. This basket of concerns has highlighted gold’s status as a store of value and a safe haven during times of uncertainty.
Meanwhile, gold slid as much as 2% on Friday and was set for its first weekly fall in seven weeks after data showed U.S. jobs growth rebounded strongly in June, which lowered the likelihood of an interest rate cut by the Federal Reserve this month.
U.S. payroll numbers surprised the global markets by being on the positive side for the month of June at 224k and unemployment rate slipping to 3.7%. So once again Fed was in a little comfort zone from an aggressive dovish tine. Tuesday will be important for the market players as the Fed Chairman, Powell will be speaking publicly over a session of question and answers at 8.30 pm IST. Mr. Powell will be throwing some light on Fed’s latest mid-post the US payroll. Meanwhile, the USD index jumped from 1.95% to 2.06%.
The U.S. jobs data is driving all the pressure on gold right now. The payroll numbers crushed all expectations. That may decrease the urgency for a Fed cut in July.
However, the US President Donald Trump’s fresh criticism on the Fed’s policy tightening triggered a fresh leg of a slide in the US bond yields, which kept a lid on any strong follow-through up-move for the greenback and eventually helped the commodity to regain positive traction at the start of a new trading week.
Adding pressure on gold, the dollar surged to an over two-week peak against a basket of six major currencies.
Gold is highly sensitive to interest rates and a lower chance of a cut would increase the opportunity cost of holding the non-interest-bearing bullion.
This coupled with deteriorating risk sentiment, as depicted by a weaker trading sentiment around equity markets, and fading optimism over a quick resolution of the prolonged US-China trade disputes provided an additional boost to the precious metal’s relative safe-haven status and remained supportive of the up-move.
It would now be interesting to see if bulls are able to capitalize on the positive momentum amid absent relevant market moving economic releases from the US and ahead of the next event risk – the Fed Chair Jerome Powell’s two-day Congressional testimony on Wednesday and Thursday.
Now the US china dilemma continues over the trade war, as Chinas latest statement on “US TO REMOVE TARIFFS” posed some new risk. Gold traders will have an eye on $1392 support as $1410 barrier. However, if gold crosses above $1412 then it is expected to fly into bigger trading ranges.
Analysts believe that gold’s set to push higher, potentially topping $1,500 an ounce, as interest rates head lower, central banks extend purchases, and uncertainty surrounding geopolitics and cryptocurrencies fans demand.
Job creation statistics tend to have only a short term effect on the gold price – perhaps of more concern should be some slightly disappointing recent PMI figures – but U.S. Markets tend to move up and down on the latest data points regardless. We anticipate some upward movement in both gold and silver.
Our MD Prithviraj Kothari thinks gold prices are likely to continue to rise; reflecting the fact gold is under-priced with Treasury yields this low and speculative positioning in the futures market quite high. Risks of policy error could send the metal even higher, and if geopolitical tensions rise, with say the trade war truce faltering, we could see even more upside for gold.