So far 2016 has been subjugated by the fall out in Chinese equities and the consequent short selling of other asset classes as a proxy hedge.
Gold continued to rally this week as it gained by the strengthening of the yen which suggests that there is constant safe haven buying which does not fit too well with the pick-up in equities and industrial metals this week.
Gold soared 1 percent on Wednesday, breaking a three-day losing streak to trade above the key $1,200-an-ounce level as Asian shares and the dollar slipped.
Bullion rallied to a one-year high last week after a stock market rout boosted demand for the yellow metal as a safe haven, but has since given up some gains as equities steadied. With stocks slipping again on Wednesday, gold was back in focus.
Speculation has increased in recent days that the Fed might resort to negative interest rates to stimulate the economy after Fed Chair Janet Yellen said last week it was an option that would not be taken “off the table.” Lower or negative rates would boost demand for non-interest-paying gold. Concerns remain that gold could correct further as someAnalysts say gold gained too much, too quickly.
The gold price fell during Asian trading hours on Friday after rallying overnight to a week’s high of $1,240.10 per ounce. But see the yellow metal remained well-supported on global economic uncertainty.
Spot gold was last at $1,226.70-1,227 per ounce, down $3.80 from Thursday’s close.
The gold price had rallied overnight following a pull-back in US equities and weaker oil prices.
Recently the analysts and market players have become more alarmed about
- The state of the global economy and
- The risk of debt default and
- Equity weakness
Gold’s positive and negative movements over the week were influenced by the following-
Oil Prices- Oil prices had risen more than 14 percent this week after Saudi Arabia, Russia, Venezuela and Qatar said they would freeze oil output at January levels as long as other producers also participate. Iran’s oil minister had welcomed the plan but did not commit to it.
The oil price rally also halted after Saudi Arabia’s foreign minister was reported as saying that Saudi Arabia was “not prepared” to cut production, scuttling hopes of a deal by major producers to cut output in an oversupplied market.
Global Economic growth- Global economic growth remains friable with the Organization for Economic Cooperation and Development (OECD) cutting its global growth forecast on Thursday by 0.3 percent to three percent for 2016 as it warns of slowing economies in Brazil, Germany and the US, and exchange rate volatility in some emerging markets.
The OECD on Thursday reports that some emerging markets are particularly vulnerable to sharp exchange-rate movements and the effects of high domestic debt.
Economic Data- Major economic data released on Thursday was mixed with a slight negative bias. China’s January PPI was -5.3 percent, a gentler decline than the forecast -5.5 percent and December’s -5.9 percent. January was the 47th straight month of decline, however.
Weekly US unemployment claims came in at 262,000, below the forecast of 275,000 and under the psychological 300,000 mark. The Philly Fed manufacturing index for February at -2.8 was close to the -2.9 estimate.
But the US CB leading index disappointed at -0.2 percent against a forecast of -0.1 percent Meanwhile in data, US CPI and Core CPI month-over-month in January came in unchanged and an increase of 0.3 percent respectively, both were above forecasts of a -0.1 decline and 0.2 percent gain.
Gold Demand- Physical demand slowed during the Chinese Lunar New Year, but global demand is also suffering as consumers and well-stocked jewellery manufacturers hold off while waiting for the price of gold to drop, according to multiple gold traders.
The gold price increased modestly for the third consecutive day as a safe-haven rally is being thwarted by weak physical demand.
Monetary policies- Market participants also await further monetary decisions out of the Eurozone and China, which has drawn closer scrutiny after the Japanese central bank decided to lower nominal interest rates into negative territory for the first time in history.
A lack of inflation and threats of another global recession has led central bankers to adopt looser monetary policy and aggressively combat sagging growth.
Market participants appear content to wait until monetary decisions out of the Eurozone and China become clearer.
The recent decision by the Japanese central bank to lower interest rates into negative territory has led other regions to consider the same action.
A lack of inflation and threats of another global recession are forcing central bankers to adopt looser monetary policy and aggressively combat sagging growth.
Till then we need to wait and watch and this seems to be the only mantra as the mart once again stands divided into a bear v/s bull market for gold.