Gold is often used as a hedge against political and financial uncertainty and security risks. And that’s exactly what’s happening with gold currently.
Gold hit a five-month high on Friday after U.S. jobs data dampened expectations that the U.S. Federal Reserve will raise interest rates, but the metal gave up most gains as the dollar rose and safe haven demand ebbed.
Spot gold rose 1.2 percent to $1,265.95 an ounce by during trading hours on Friday, after touching its highest since Nov. 10 at $1,270.46, low interest putting it on track for a fourth consecutive week of gains. U.S. gold futures climbed 1.1 percent to $1,267.60 an ounce. This is the most supportive environment we have seen for gold in some time given that there are geopolitical tension and disappointing U.S. payrolls number
Data released showed that U.S. employers added the fewest number of workers in 10 months in March, boosting gold, which is most attractive to investors in a low-interest rate environment.
Gold was also underpinned by investors looking for safety after the United States fired cruise missiles at a Syrian airbase, escalating tensions with Russia and Iran.
Russia, a staunch ally of Syria, said relations between Washington and Moscow had been seriously damaged by the strike, which was in retaliation for a deadly chemical attack on a rebel-held area of Syria.
The precious metal hit a 5-month high as investors sought safe-haven assets after the United States launched cruise missiles against a Syrian air base, potentially escalating tensions with Syrian allies Russia and Iran. U.S. President Donald Trump unleashed the military strikes in response to a deadly chemical attack on a rebel-held area, a U.S. official said on Thursday.
Later in the session, however, safe haven demand faded and the dollar index. DXY climbed to three-week highs which further rose questions that unless the geopolitical risk continues; will the sentiment remain positive for gold?
Investors were cautious ahead of the meeting between U.S. President Donald Trump and Chinese President Xi Jinping, but Trump said on Friday he had made progress in talks and expected them to overcome many problems. Investors had already been on edge as Trump met Chinese leader Xi Jinping on Thursday for talks over flashpoints such as North Korea and China’s huge trade surplus with the United States.
Gold is often used as a hedge against political and financial uncertainty and security risks. It has benefited alongside other assets considered safe, such as the yen and U.S. Treasury bonds.
Though geo political uncertainties are creating room for gold to rise, we shouldn’t ignore the key influential factor for gold i.e. U.S. interest rate hike.
Increases in U.S. interest rates will prove too much of a headwind for gold prices. As such, we think that the price of gold is likely to fall from about $1,265 today to $1,050 by the end of the year if there is any news coming in from the Fed regarding hike in interest rates.
Clearly this raises the stakes and we expect to see gold prices continuing to push higher in the short-term, at least until there is some clarity around whether this is a one-off or develops into something more.