Gold’s long term appeal continues to remain clouded by doubt. The dollar is getting stronger and the US economy is on the forefront and traders believe that interest rates will rise faster which weighs on gold as they lift the opportunity cost of holding non-yielding assets.
Till Thursday, gold price remained in a tight trading range. Precious metals sliced back early gains on Thursday after the lower than expected jobs number were released. Unemployment claims climbed 290000 more than the estimated 282,000 and Jolts jobs opening disappointed at 4.74 million against the expected 4.81 million.
The WGC released its Gold demand Trends report for Q3 and it showed that gold demand has been lying low along with the declining demand for jeweller, falling investment demand for bars and coins and reducing central bank purchases.
For the past few days gold has been hovering around $1159.20. But lately, gold has stabilised. After hitting its weakest level of the year till date on November 7.
But on Friday gold got the big push after a sudden weakening of the US dollar . Gold surged 2.5 percent on Friday to just shy of $1,200 an ounce.
Bullion secured more that $40 to a two -week high at $1,193.34 in New York after dropping more than 1 percent in early trade to test the $1,145 level, where strong support was seen twice in the last four sessions, triggering pre-weekend short covering.
Now that the dollar has been moving back and forth and everybody is watching the dollar very closely.
The dollar lately has hit a two-year high against the euro and seven-year high against the Japanese yen, fuelled by diverging interest-rate outlooks.
There are expectations that the US monetary policy will tighten next year as it is considered to be a stronger economy than Japan or the Euro zone. Which further dictates the fact the US dollar will strengthen as precious metals often move inversely to the U.S currency, it means that they are bound to decline.
Gold is often bought as an alternative currency when the dollar weakens, and vice-versa, while a muscular dollar also makes all commodities more expensive in other currencies and thus can hurt demand.
Next week a number of key economic indicators are lined and all investors will be closely watching over these.
Monday- Industrial production and the New York Federal Reserve’s Empire State manufacturing index
Tuesday- The producer price index
Wednesday- Housing and the Federal Open Market Committee releases minutes of its last meeting.
Thursday- Jobless claims, the consumer price index, existing home sales and Philadelphia Fed manufacturing survey.
Moreover on Wednesday one of the key influential factors will the upcoming US economy data which will be a deciding factor for the Fed to decide as to when it is likely to increase the interest rates.
Apart from the key economic indicators traders will also we keeping an eye on physical demand for gold and the Swiss refendrum.
Demand -China and India are the world’s two largest gold-consuming nations. The Indian wedding season will primarily witness gold buying and the Chinese too stock up the metal ahead of the country’s New Year festivities.
Swiss referendum– Swiss gold referendum is scheduled for Nov. 30. In this referendum the Swiss voters will decide whether the Swiss National Bank would have to hold at least 20% of its assets in the precious metal. This would open doors for more demand for gold as the central bank would have to accumulate much more gold, adding to the requirement side of the equation. Also, the referendum asks voters if the SNB should be banned from selling gold and whether all of its gold reserves should be held in Switzerland.
With the Dollar Index at a four-year high, the U.S. stocks reaching new highs, disinflation occurring in Europe and Asia, and commodity prices plunging, the gold prices have a hard time rallying.