September was an action-packed month, with North Korean rockets and a succession of monster hurricanes all coming at the markets almost at the same time. Not forgetting the comments coming out from the Federal Reserve that contributed to the frenzy by giving a clear signal of a December rate hike. In the process, it perhaps single-handedly helped the dollar index recover from a three-year low hit earlier in the month.
Amid a resurgent dollar, the month of September proved to be worst for gold since November 2016. However, as geopolitical tensions soar, with the standoff between the U.S. and North Korea probably topping the list, demand for precious metals surged with Gold ETF holdings rising most since Feb 2017.
Last week, gold prices ended lower on Friday as weak U.S. consumer spending and inflation data did little to alter expectations for a third interest rate increase by the Federal Reserve this year.
The dollar has risen in recent weeks as investors grow more optimistic about the prospect for U.S. rate hikes and tax cuts that some expect to boost the U.S. economy.
Data on Friday showed that
• U.S. consumer spending barely rose in August.
• Inflation also remained sluggish with the core personal consumption expenditures price index rising 1.3% year-on-year, slowing from 1.4% in July.
• The core personal consumption expenditures price index is the Fed’s preferred inflation measure and has a 2% target.
The data did little to temper rate hike bets after Yellen indicated earlier in the week that the central bank was sticking to plans for a third rate hike this year and three in 2018.
The metal recorded its biggest monthly decline so far this year in September, despite netting a quarterly rise of nearly 3 percent partly due to geopolitical tensions including North Korea’s missile tests.
The U.S. currency recorded its best week of the year on Friday, despite benign inflation data for August, as expectations that the Fed would raise interest rates again in December loomed large after Fed Chair Janet Yellen said the central bank planned to stay on its current rate hike path.
Higher interest rates tend to boost the dollar and push bond yields up, weighing on greenback-denominated gold
The dollar’s rise paused on September 28 and 29 but was seen gaining momentum on Monday morning.
Gold slipped to its lowest in nearly seven weeks early on Monday, 2nd October as the U.S. dollar rose and equities gained while growing expectations for a Federal Reserve interest rate hike in December also added to the pressure.
Spot gold was down 0.3 percent at $1,274.90 an ounce by 0353 GMT, after earlier touching its lowest since mid-August at $1,273.55.
Gold prices fell in Asia on Monday as the dollar gained and the euro dropped as investors mulled the implications of the disputed referendum on Catalonia independence in Spain on the euro zone and a sentiment survey out of Japan in a thin trading day with China’s markets shut for the week and holidays regionally expected to see thin flows.
Elsewhere, The Bank of Japan released its Tankan survey for the third quarter with investors focused on the large manufacturer’s index as it rose to 22, compared with an expected reading of 18.
This week, comments by Fed Chair Janet Yellen will be closely watched for further hints on the timing of the next rate hike along with Friday’s U.S. jobs report. Market watchers will be looking ahead to remarks by European Central Bank President Mario Draghi on Wednesday.
Gold, silver and platinum prices continue to correct and the stronger dollar and lull in tensions over North Korea, seem to be weighing on prices. We would let the corrections run their course, but the North Korean situation is likely to escalate again at some stage, so the next rally in gold prices may not be that far away.