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'

Is the gold price heading 'much lower'?

6 October

Gold is fresh off the back of its worse fall for 15 months - but the price could be set to fall "much lower" yet, says Rupert Hargreaves on Value Walk.

The precious metal fell sharply this week as the dollar surged and speculation of an increase in US interest rates continued to build ahead of the next month's meeting of the Federal Reserve.

Gold is a hedge against the greenback and tends to be inversely correlated to rates increases, which boost alternative, yield-bearing assets.

There is also a general sense that its 2016 bull run, which as of yesterday still left it 20 per cent up for the year so far, might have run out of steam, prompting investors to book profits.

The price dipped another 0.8 per cent today and has tumbled around $14 in the last couple of hours to $1,254 an ounce, the lowest level since last June.

The trigger appears to be the latest US jobless claim figures, which the Financial Times reports revealed 249,000 claimed unemployment benefit last week, down from 254,000.

These figures are a proxy for the number of workers being laid off and analysts had expected a modest rise. This would imply that over-employment will post a strong rise in official data tomorrow.

That, in turn, adds to the case for an interest rate rise before the end of the year.

Among the factors that could derail the Fed, apart from its own caution in the face of global headwinds, is a sharp turn in the data or a shock victory for Donald Trump in November's presidential election.

Otherwise, analysts only see gold going one way. Bank of America Merrill Lynch's technical strategist Paul Clana said it could fall to $1,250 and then on to $1,210 unless it recovers ground quickly.

Gold price falls to post-Brexit vote low

5 October

Gold was in full-on retreat in New York overnight. Having already slipped to a two-week low in London, it went on to crash by more than three per cent to hit a little above $1,266 an ounce. Prices recovered only marginally to $1,273 by lunchtime in London today.

Last night's slump marked the biggest fall since December 2013 while the closing price was the lowest since 23 June, the day before the shock Brexit result in the EU referendum was announced.

There are a few reasons for gold's plunge. Firstly, on the back of generally positive economic data, traders expect the US Federal Reserve to increase interest rates again before the end of the year.As rising rates boost the value of yield-bearing assets, they are negative for gold, which also suffered in the wake of the last hike in December 2015.

Secondly is the strong US dollar, which has surged over the past two sessions and is at a 31-year high against the pound, in part boosted by the rates rise speculation.

Gold is seen as a hedge against the greenback so it tends to move in the opposite direction.Finally, there is waning demand resulting from not only the rates and dollar movements, but also traders "locking in gains from assets that have appreciated sharply in 2016", says the Wall Street Journal.

Gold has risen by around 20 per cent this year and was up more than 25 per cent before its slump. Purchases of exchange-traded funds tracking gold hit their lowest level since April last month, says the Financial Times.

"It would appear that weaker physical demand has put the brakes on the rise in gold prices," analysts at Commerzbank said.

If current trends continue, gold could drift lower as the year draws to a close. But if economic data do not support a rates hike, the Fed gets cold feet again or the markets are hit by external events such as a Donald Trump election victory, it could yet surge again.

Gold prices at two-week low on stronger dollar

04 October

Gold has fallen to a two-week low as a stronger dollar squeezes prices.

The spot gold price sank to $1,307.10 per ounce, down more than $4 on yesterday's close, after the greenback was strengthened by forecast-beating US industry data.

The US purchasing managers' index came in at 51.5, close to the expected 51.4, while the Institute for Supply Management's manufacturing index for September also hit 51.5, comfortably beating the anticipated 50.4.

This healthy rebound, after an unexpected drop in August, has lifted the odds of a December rate rise from the Federal Reserve, Angus Nicholson, a market analyst at IG, told The Bullion Desk.

Because gold doesn't pay income, higher interest rates increase the "opportunity cost" of owning gold. Lower interest rates, meanwhile, reduce the relative value of other income-yielding assets, bolstering the yellow metal.

William Adams, the head of research at FastMarkets, said the drop in gold is part of a wider threat.

"The precious metals, with the exception of palladium, are under pressure and look vulnerable," he said.

"Platinum has already broken below recent support and gold and silver prices are holding down in low ground," he added. "The stronger dollar and better economic data may well prompt more long liquidation by funds."

Silver was at $18.790/18.810 per ounce, while Platinum, at $1,002/1,008, was $2 higher and palladium at $711/717 was up $4.

Gold price: 'Buying fatigue' could be a turning point

26 September

Gold could be facing a turning point at the end of what has so far proved to be one of its best years for four decades.

The yellow metal, seen as a safe haven in times of economic strife, benefits from low interest rates, which reduce the relative value of other income-yielding assets.

Consequently, this year has been one of its most successful since 1980, says Mining.com, with the price up around 26 per cent, or $280, and hitting a two-year high in July of $1,380 an ounce.

But gold's struggle to "break out of its $1,300-$1,350 an ounce range" since then has led to "buying fatigue" among speculators that could spell trouble to come.

Bullish bets on the price rising, at an all-time high two months ago, have dropped markedly, slipping ten per cent last week alone. Short bets on falling prices rose by the same amount.

Added to that, the Federal Reserve last week dropped its strongest hint yet that another interest rate rise could be coming before the end of this year.

That would be a boon for the dollar and would put pressure on gold, with its nine-month bull run giving plenty of scope for a sharp correction.

Gold was up 0.3 per cent to $1,341 this afternoon in London. It had earlier slipped slightly as the dollar firmed, says Reuters, but sentiment was shifting ahead of the first televised debate in the US presidential election race this evening.

November's vote is the big wild card for investors, with the market likely to react in a volatile fashion to the prospect of Donald Trump being in the White House.

In the short term, there could be gold-price movements based on the perceived outcome of the debate this evening, analysts said.

"If Trump is perceived to have an improved probability of winning the presidential race, that is likely to be supportive of the gold prices, so we could see [gold] prices rallying in the short term amid higher volatility," said National Australia Bank analyst Vyanne Lai.

Precious metal funds dominant after 2016 gold price surge

24 August

A gold price surge has pushed precious metal funds to the top of this year's performance charts, reports the Financial Times.

Having fallen by 40 per cent from a 2011 peak of $1,920 an ounce in the closing months of 2015, gold has risen by 25 per cent so far this year to above $1,330 an ounce, defying predictions it would tumble to below $1,000.

For brief periods this summer, it even spent time above $1,360 an ounce.

Other precious metals have also performed well. Funds that in one way or another seek exposure to these hard commodities now make up "all 10 best-performing mutual funds in both the US and Europe".

That's according to data from Morningstar analysts, which says metals funds have nearly doubled investors' money in the first seven months of the year.

Most of those funds are invested in equities linked to metals, such as mining stocks, which often enjoy an even bigger bounce than the underlying price move. Investing in such funds is the easiest way to get exposure to the gold price.

Another way to benefit is to invest in exchange-traded funds that track the gold price directly, or in physical gold, either by buying from specialist dealers or through BullionVault or the Royal Mint, who will also store it for you.

Right now, gold is moving broadly sideways as investors await news on the short-term direction of interest rates in the US.

When rates rise, the opportunity cost of holding non-yielding gold also goes up, which tends to weigh on demand. Rises in rates also boost the dollar, against which the metal is often held as a hedge.

After rates edged up last December, the main reason for gold's 2016 advance has been that the Federal Reserve has not pushed on as expected with normalisation of monetary policy. The Brexit vote only makes it more likely policy will remain dovish.

Reuters says Federal Reserve chairwoman Janet Yellen will give a speech at the weekend that, with the US economy currently enjoying a period of strong growth, will be closely scrutinised for any hints of the Fed's thinking and plans for the future.

Gold is currently trading at $1,327.60 an ounce. If the market interprets Yellen's speech as signalling a second rates increase will not come in September - which pushes any rise back to December, if not next year - it is likely to go on another rally.

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