Though gold slipped consecutively for 3 days, past week ended on a positive note and stayed on track for a second successive weekly gain driven by diminishing expectations of a looming hike in U.S. interest rates.
The metal was up 0.7 percent during the week, holding on to nearly half the sharp gains it made on last Tuesday after a weak U.S. data instigated talks that the Federal Reserve will hold off raising rates at its September policy meeting.
Spot gold was down 0.25 percent at $1,334.60 an ounce at 1152 GMT on 9th September, while it peaked $1,352.65 an ounce after rallying 1.8 percent on Tuesday.
Reasons being the same- Fed Hike, US data, US dollar and ECB. These factors have been repeatedly influencing gold prices since quite some time. Yes I know that we have discussed these points time and again, and we all know that they keep influencing gold prices but thee way and the extent to which they influence does change every week and hence we once again throw light on this week’s gold’s behaviour-
ECB– On Thursday, the European Central Bank (ECB) decided to maintain its current bond-buying programme and kept interest rates unchanged, surprising investors who had expected another round of quantitative easing in the wake of the UK’s vote to leave the single market.
The ECB’s unexpected stance led to a broad-based selloff in the commodities sector, while also fuelling a dollar rally – last trading at 95.45 on the dollar index, the highest point in a week.
Analysts and traders believe that The ECB’s decision would also increase the likelihood of the US Federal Reserve implementing a rate hike before the year end.
Global Data- Meanwhile in a slow data day, US wholesale inventories for July were unchanged, missing expectations of a 0.1 percent rise.
Overnight, China’s August CPI came in at 1.3 percent, below July’s reading of 1.8 percent and market forecast of 1.7 percent.
The Chinese August PPI fell 0.8 percent, improving from a drop of 1.7 percent in July and better than consensus of a one-percent drop. August, however, marked the 54th straight month of decline.
Weak global data pushed gold prices high over the week.
US Dollar– Prices have largely moved in concert with the dollar – against a basket of currencies it recently hit a multi-week low and was last trading at 94.56. But investment demand in gold and its potential upside remain capped
The combative rhetoric – along with employment claims coming in better-than-expected at 259,000 – led to a minor dollar revival earlier during US trading hours.
Gold has rebounded strongly but have seem too stabilised between $1,355 and $1,375.25 and analysts believe to remain more or less in this trading range. But with the dollar looking weaker, we would not be surprised if gold prices work higher. The rest of the precious metals would follow suit.
Fed Hike- Richmond Fed President Jeffery Lacker said on Wednesday the case for a September hike was going to be “strong” and echoed his colleague Esther George who said that she too saw the US labour market approaching full employment.
Market participants currently see a 21 percent change of a US rate hike in September, with majority expecting it to happen in December, according to the CME FedWatch Tool.
Gold prices will trend higher still in near term, largely driven by lower Fed tightening expectations. Gold prices are expected to boost further, given that the Fed is unlikely to move in September and the current probability of a September move is likely to ease further.
The Federal Reserve will meet on September 20-21 and again on November 1-2 before the country goes to the polls on November 8. Given the looming presidential election and the forecast-missing jobs report for August, the US central bank is widely expected to hold off on raising rates until next year at the earliest despite increasing hawkish rhetoric from FOMC members.
Federal Reserve Bank of Boston President Eric Rosengren, who shifted his stand in recent months in favour of monetary tightening, warned Friday that waiting too long to raise interest rates risks overheating the economy. Higher rates make bullion less competitive against interest-bearing assets. The comments come a day after the European Central Bank played down the prospect of an increase in asset purchases.
In the two-week run-up to the Fed’s next policy meeting, additional US economic data releases will further inform the market’s view of rate hike probabilities. At the current time, the greater likelihood is that there will be no September rate hike. If this continues to be the case, gold could potentially break out above the noted downtrend line and $1350 resistance level. In this event, the next major upside targets are at the mentioned $1375 high, followed by the key $1425 resistance objective.