In Depth

Gold price waits for rates clues from Jackson Hole

Political turmoil in the US has the potential to 'help gold in the short and longer term'

Gold price falls again after closing at five-month low

18 November

The gold price closed at a five-month low at the end of New York trading yesterday, dropping to $1,216 an ounce, according to the Wall Street Journal.

It fell again in London this morning, down 0.9 per cent to a shade above $1,206 an ounce. Earlier on Thursday, the precious metal had traded as high as $1,229.

Gold's turnaround was triggered by the latest boost to the dollar, with an index ranking the currency against a basket of its global peers at its highest since April 2003.

The boost to the dollar came after Federal Reserve chair Janet Yellen gave another strong hint to a congressional committee that a rates rise might be in the offing, perhaps as soon as next month.

Yellen reiterated that a second rates rise in a year "could well become appropriate relatively soon".

Markets are already pricing in a strong chance of an increase next month, after recent strong economic data.

Yellen acknowledgethat since Donald Trump's election traders have "moved to factor in higher growth and inflation and therefore higher fed funds rates", says The Bullion Desk, citing comments from ANZ Bank.

Some traders are pointing out that while gold is down sharply since the US election (in the immediate aftermath of which it hit $1,337 an ounce), the metal has been caught in a tight range below $1,225 for much of this week.

"There's not a lot of strong conviction" in gold, Bob Haberkorn, senior market strategist at RJO Futures, told the Journal. "Gold's stuck here right now."

Not everyone agrees. DailyFX says that if the gold price were to close below $1,200 an ounce it could prompt a fresh wave of selling that would send it down to around $1,170.

Gold price 'will be just fine', says fund manager

15 November

Despite its slump to a five-and-a-half month low on Monday, fund manager Alex Merk has told CNBC that gold "will be just fine".

The gold price hit a nadir of $1,211 an ounce in New York yesterday evening, its lowest since 3 June, before recovering to end the session at $1,222, says Reuters.

The precious metal was trading at around $1,224 this morning in London, relatively unchanged from its opening price on Monday.

It's still down almost nine per cent from its high of $1,337 an ounce in the immediate aftermath of the US presidential election when Donald Trump's victory sent shockwaves around financial markets.

NAB analyst Vyanne Lai told Reuters that "given such a sharp drop" the fall in the gold price was likely to be "cushioned" by an increase in physical bargain-buying.

Investors are also holding relatively steady on gold around its new lower range ahead of an appearance by Federal Reserve chair Janet Yellen on Thursday in front of a congressional committee, says

Yellen's comments could give more of an indication of whether the Fed will raise interest rates next month as expected.

Increases in interest rates tend to be negative for gold, which doesn't provide an income and so loses out relative to other assets.

Trump's win has sparked speculation of a surge in inflation on the back of a big boost to infrastructure spending, which could prompt a more rapid increase in interest rates – hence gold's surprise slump in recent sessions.

But Merk says this misses the fundamental issue, which is whether inflation will remain ahead of the yield curve – that is to say, whether it will rise faster than interest rates.

If it does, real interest rates would be negative. This would trigger sell-offs of assets like bonds that are already in widespread retreat. Gold would thereby benefit.

"At [the] end of [the] day, the Fed is going to be behind the curve and gold will be just fine," says Merk.

Gold price could break below $1,200 on 'Trumpflation' fear

14 November

The gold price recovered in Asian trading overnight, rising around one per cent to $1,224 an ounce before the start of the European trading session this morning.

However, reports Reuters, it had earlier hit a five-month low of $1,212 an ounce, following a three per cent dive on Friday, the third day of consecutive losses in the wake of Donald Trump's US presidential victory on Tuesday.

Gold was back below its closing price at the end of last week shortly after 9.30am today, hitting $1,222. Last Wednesday, it briefly rose to $1,337 before embarking on its prolonged slide.

Analysts said prices were being hit after Trump's promised $1trn (£800bn) splurge on infrastructure, which would impact on inflation and add to pressure for the Federal Reserve to raise interest rates. As rising rates tend to hit non-yielding gold relative to income-paying assets, this has knocked investor sentiment. 

The Fed is expected to raise interest rates in December in the wake of strong economic data and the expected markets' meltdown following a Trump victory not materialising.

"People seem to have unwound their Trump-risk and are now talking more about 'Trumpflation'," Jeffrey Halley, senior market analyst at OANDA, said. "That would push up borrowing rates and yields in the States." 

He added: "The rate hike in December is an absolute done deal now."

Wang Tao, the technical analyst at Reuters, said gold may now find support in a zone of $1,204-$1,210, but could yet slump further after a brief bounce as investors continue to unwind bets on rising prices.

DailyFX's Michael Boutros agrees and warned that if prices fall below $1,205 an ounce, they could slide towards $1,171. But he said investors should watch for resistance leading to "a more meaningful counter-offensive". 

Could the 'Trumped' gold price fall to $1,200 an ounce?

11 November

The gold price got "Trumped" this week, says DailyFX

Widespread expectations were for Donald Trump's shock victory in the US presidential election to trigger a major sell-off of risk assets and a corresponding surge in the gold price, with analysts even predicting it could rise to $1,500 an ounce.

However, after a brief rise to $1,337 an ounce, gold markets recovered their poise and in the second full-trading session after the vote, the price fell to below its pre-election low of $1,280.

The slide continued amid volatile trading conditions overnight during Asian trading. Gold fell to a four-week low of $1,250, hit highs of $1,265 and settled at $1,262. It dipped again to $1,256 an ounce in London this morning.

Yesterday's record close on US markets was followed by a major slide on emerging market bourses over concerns about a capital flight if Trump's promise of an infrastructure spending triggers a rise in interest rates.

The fiscal stimulus could send inflation sharply higher – a move that would be bad news for non-yielding gold, which struggles when interest rates are rising.

"Gold stayed on the defensive, beset by enhanced growth expectations as… investors took on the view that the pro-growth policies of a new administration were good for paper assets," James Steel, the metals analyst for HSBC, told Reuters.

The gold price is down three per cent this week and set for its first weekly fall in a month. DailyFX reports it is below its 200-day moving average and says the "intersection" of this trend line with a May nadir around $1,200 is "a magnet".

However, Steel and others have highlighted a "resistance" point around $1,255 an ounce, driven by strong physical buying in China whenever the price seems to dip markedly.

Wang Tao, Reuters' technical analyst, said this could keep gold trading in a range between $1,255 and $1,270 in the short-term.

Gold price drops back after Trump victory surge

10 November

When Donald Trump was initially announced as the president-elect of the US, markets around the world took a tumble while the safe harbour of gold rallied strongly.

Having risen five per cent to $1,337 an ounce, gold then fell rapidly in a case of so-called "Trump hump" and today, dropped below pre-election levels to hit $1,278.

The fall partly reflects the "quite conciliatory and presidential" tone of the president-elect's victory speech, which Mitsubishi analyst Jonathan Butler told Reuters had "calmed the markets".

In fact it has presaged what others are now calling a "Trump honeymoon", with the Dow Jones set to "open in record territory" this afternoon and the S&P 500 expected to begin trading "just shy of its record closing high set in August", says the Financial Times.

In addition to Trump's fairly lightweight speech, there is a sense that the markets are recalibrating the potential impact of his presidency, especially the big infrastructure spending programme he has pledged.

"The baseline view now seems to see the new administration's grandiose fiscal policy plans stocking a rapid inflation pickup," says DailyFX. "This will accelerate Fed stimulus withdrawal, boosting yields and undermining gold's appeal."

Gold tends to do badly in times when base interest rates are rising as this makes other assets offering an income yield more attractive in comparison.

Adding to the sense that the Trump presidency will not derail the tightening of monetary policy, which many experts said would lead to another rates rise in December, was a comment from one of the Federal Reserve's policymakers indicating it has not been affected by the election outcome.

Chicago Fed president Charles Evans said on Tuesday that only a "pretty sizeable" negative surprise would convince it to hold off from raising rates next month.

Despite Evans's comments, several analysts, including Mitsubishi's Butler, told Reuters they believe policy uncertainty surrounding Trump will be "gold supportive" in the medium term.

UBS Wealth Management Research says it expects market rates to drift lower in the coming weeks and months – and for the gold price to rise to $1,350 in six months' time.


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