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Showing posts with label US Doller. Show all posts
Showing posts with label US Doller. Show all posts

Tuesday 3 July 2018

Dollar gains safe haven appeal

With the first half of 2018 now drawn to a close, much of the financial medias’ headlines and commentary relating to the gold market has been focusing on the fact that the US dollar gold price has moved lower year-to-date. Specifically, from a US dollar price of $1302.50 at close on 31 December 2017, the price of gold in US dollar terms has slipped by approximately 3.8% over the last six months to around $1252.50, a drop of US $50.

It’s been a choppy first half. After trading above $1,300 since the start of the year, prices ticked lower in mid-May and went into free fall two weeks ago, erasing the year’s gains. Investors shunned bullion and favoured the dollar and Treasuries instead as they weighed the uncertainties surrounding the impact of a U.S.- China trade war on global growth.


Gold’s losses in June, driven by an ascendant dollar, have put the precious metal on course for its biggest monthly drop since November 2016, when markets were roiled by Donald Trump’s victory in the U.S. election.

The metal dropped 3.6 percent in the month of July, while a gauge of the greenback is up for a third straight month amid escalating global trade tensions.

Investors have moved to the US dollar as a preference choice for safe haven .This has benefited the dollar and weakened gold. It has indirectly led to gold-price weakness, as the dollar and gold typically move inversely to each other. With the emergence of inflation, gold is likely to find a bottom, as the dollar’s gains weaken.

On the contrary, Suddenly, On Friday, gold finally gained support near $1245 after falling to a six month low.

Reasons being-

  1. U.S. Final GDP Disappoints – The gross domestic product was expected to grow at a pace of 2.2%, but the actual figure fell to 2%. Consequently, the weakness in the U.S. dollar underpinned gold. 
  2. EU Leaders Agreed on Conclusion – The Chairman of the talks, Donald Tusk said, “EU28 leaders have agreed on (summit) conclusions, including on migration”.
In response to this news, the investors moved their investments from Greenback to Euro. Therefore, the Euro jumped over 0.7% on Friday and dollar index fell 0.3%, causing a bullish reversal in gold.

But this week opened on a negative note for gold. Gold prices edged lower on Monday as the dollar firmed after last week’s U.S. inflation data supported the Federal Reserve’s outlook for future interest rate increases. The dollar strengthened against a basket of currencies and extended its gains against the yen to hit a fresh six-week high of 111.06 yen, supported by the relative strength of the U.S. economy and on prospects of further rate hikes from the Federal Reserve.

US dollar strengthens by any normalization of monetary policies thus weakening the yellow metal.
U.S. consumer prices accelerated in the year to May, with a measure of underlying inflation hitting the Federal Reserve’s 2 percent target for the first time in six years, data showed on Friday
The rise in price pressures will probably not shift the Fed from its stated path of gradual interest rate increases as policymakers have indicated they would not be too concerned with inflation overshooting its target.

Gold is highly sensitive to rising U.S. interest rates, which increase the opportunity cost of holding non-yielding bullion, while boosting the greenback.

Tuesday 29 November 2016

Roller Coaster Gold ride edges lower as US dollar regains strength

Gold has been witnessing downward pressure since the past two weeks. But in the last week this pressure became so austere that we saw gold dipping to its nine month low below the important$1200 level. At $1180 gold hit its lowest level since early February. Furthermore, Good US economic data, which caused the US dollar to appreciate, had fuelled the next wave of selling on last Thursday noon.

The US dollar index climbed to its highest level since March 2003. Furthermore, US stock 
Markets continued to rise, which suggests on-going high levels of risk appetite among market 
Participants, while yields on ten-year US Treasuries climbed above the 2.4% mark again for 
the first time since July 2015.

The US dollar index has continued to strengthen amid positive US economic data while putting pressure on the gold price. The index had reached as high as 102.05 on Thursday, the highest since March 2003.



In addition, gold ETF’s witnessed massive outflow, thus reducing their holding by 13.7 tonne putting them at a five-month low of only a little over 1,900 tons. This was already the tenth consecutive daily outflow.

During this period, ETFs have had their holdings cut by a total of 101 tons. 

Although gold in euro terms is faring somewhat better thanks to the firm US dollar, at €1,122 per troy ounce it nonetheless fell to its lowest level since early October. 

The spot gold price eased during Asian trading hours on Friday November 25 as a strong US dollar continued to weigh on the yellow metal.

The US was closed for Thanksgiving holiday on Friday which resulted in quieter trading leading into the weekend.

Gold recovered from an earlier nine-month low and moved into positive territory on the morning of Friday November 25 in London, reflecting a pause in the dollar’s rally.

This sentiment continued for this week, giving gold a positive opening on Monday.

Gold was in positive territory on the morning of Monday November 28 in London, with a slightly weaker dollar generally underpinning precious metals prices.

The dollar index was recently at 101.05, having been as high as 102.05 in the previous week, it’s highest since March 2003.

The spot gold price was recently quoted at $1,192.00/1,192.30 per oz, up $8.20 on the previous close. Trade has ranged from $1,187.05 to $1,197.70 so far.

The spot gold price edged lower during Asian trading hours on Tuesday November 29 as the US dollar regained strength.

Growing sense of ‘opportunity cost’ among investors could be behind a surprise fall in the value of gold, after the precious metal failed to live up to its status as an inflation hedge and safe asset.

Softer spot prices may encourage physical demand while the holiday seasons in both Asia and Europe approach.

Before the UD election, gold was expected to trade unpredictably but now that prices have more or lessstabilised, market for gold is expected to be bullish. Moreover, Mr. President has been talking tough on trade which further raises uncertainty and create nervousness in the market thus keeping the bullish trend alive for the yellow metal.

Gold should provide a good hedge against fallout from what political policy changes lay ahead, as well as from any correction in super-charged markets.

The commodity, traditionally regarded as a safe haven for skittish investors, was among those assets viewed as a potential winner in a year marked by significant market shocks and rising inflation expectations – which many now predict during a stimulus-happy Donald Trump presidency.

This sentiment, however, is yet to be borne out by the price of the precious metal. While other hedges such as inflation-linked bonds have performed relatively well, gold has been trending downwards, both in the months leading up to the US election and its aftermath.