Gold looks positive while uncertainties prevail

 

Last week gold closed on a positive note over political uncertainties in United states following the sacking of FBI chief James Comey pressured the Dollar and equities fell.

Though gold prices were down through the week, by Friday they rose for a second straight session.

The trend continued in Asia and early Europe last Friday with the dollar unable to gain an additional traction as USD/JPY hit resistance above 114.00

There were a series of data released last week that compelled gold to move in a wave like a pattern-

  • New applications for U.S. jobless benefits unexpectedly fell last week, while producer prices rebounded strongly in April, pointing to a tightening labour market and rising inflation that could spur the Federal Reserve to raise interest rates in June.

 

  • The headline US retail sales data was weaker than consensus forecasts with a 0.4% monthly increase and the underlying increase was also below expectations at 0.3% compared with an expected 0.5% although the impact was offset to some extent by upward revisions to the March data.

 

  • The consumer inflation data was also weaker than expected with a headline increase of 0.2% for the month compared with an expected 0.3% gain.

 

  • Core prices increased 0.1% on the month with the year-on-year rate declining to 1.9% from 2.0% previously.

 

  • The Chinese new loans data was above consensus expectation which helped underpin confidence in the short term growth outlook, although money supply growth was lower than expected.

 

  • The combination of a weaker dollar and lower bond yields put upward pressure on gold prices with a move to above $1,230 per ounce before a correction back to just below this level.

 

  • Gold holdings to back the giant GLD gold ETF trust fund ended Thursday unchanged at an 8-month low, but the iShares SLV silver ETF shrank by 74 tons – almost a whole day’s global silver mining output – as shareholders liquidated their positions.

 

  • That took the SLV down almost 9% from last fall’s near record-high holdings, then equal to more than two-fifths of annual silver mine production worldwide.

 

  • Federal funds futures implied traders saw about a 49 percent chance the Fed would increase rates twice by the end of 2017 shortly after the data, compared with 54 percent just before the release of the latest readings on U.S. store sales and the consumer price index, CME Group’s FedWatch program showed.

Gold is highly sensitive to rising rates, which lift the opportunity cost of holding non-yielding assets such as bullion while boosting the dollar, in which it is priced.

Continuing with previous weeks sentiments this week too gold opened on a positive note.

Gold rose as U.S. political turmoil, a missile test by North Korea and a worldwide cyber-attack fuelled demand for safe-haven assets, while weaker than expected U.S. data pushed the dollar lower, making gold cheaper for holders of other currencies.

Spot gold was up 0.4 percent at $1,233.69 an ounce during trending hours on Monday, on track for the third day of gains after hitting an eight-week low of $1,213.81 last week. U.S. gold futures gained 0.5 percent to $1,233.60.

Gold was once again set to rise over continued unpredictability of the Trump administration, North Korea flexing its muscles again and weaker U.S data

Gold prices increased for a fourth day on Tuesday as the dollar eased on signs of slower economic activity in the United States that knocked expectations of an aggressive string of interest rate hikes by the U.S. Federal Reserve.

The New York Federal Reserve bank said on Monday its Empire State Manufacturing Activity Index, a report on business activity in the state; unexpectedly fell in May, sinking into negative territory for the first time since October.

The weaker-than-expected report could be a harbinger a possible descent in the U.S. manufacturing sector.  Expectations of a U.S. rate increase in June fell to 74 percent compared to 84 percent last week, according to the CME FedWatch.

Higher interest rates tend to boost the dollar and push bond yields up, putting pressure on gold prices by increasing the opportunity cost of holding non-yielding bullion.

A lift in gold prices is expected over a risk aversion sentiment due to recent global developments including the North Korean missile test, the massive “ransomware” cyber-attack and controversies surrounding U.S.President Donald Trump.

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