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 at four-week low as focus shifts to rates

19 June 

The gold price fell to a four-week low today, marking a near-$50 retreat from its highs earlier this month.

The fall was set in motion at the end of last week in the wake of the Federal Reserve raising interest rates for the second time this year. Hints of a possible third rise in the coming months are also affecting trading.

While the Fed's move was widely expected, it's seen as being increasingly hawkish on rates – and higher rates hurt non-yielding assets like gold relative to income-bearing alternatives.

Bloomberg says that some hedge funds had anticipated the move. They traded net long positions (bets on prices being higher in the future) down by more than ten per cent ahead of the Fed's Open Markets Committee meeting last week. 

The precious metal was trading a little below $1,295 an ounce earlier this month and was on course to set a new 2017 high. 

Today it's still edging lower. At the time of writing, it's changing hands at around $1,248 an ounce – its lowest level since 24 May, according to Reuters.  

Alongside the rates focus – which also has the effect of boosting the dollar against which gold is negatively correlated – a confluence of geopolitical issues that was driving trader uncertainty appears to have dissipated. 

When traders are nervous they tend to turn to gold, which is famously a safe haven at times of stress.

Issues that were a source of concern include the increasingly bellicose rhetoric between Donald Trump and North Korea, and the James Comey scandal that was seen as having the potential to bring down Trump's administration. 

These issues have not gone away completely, however. Uncertainty in Europe remains high after the UK election result which will see the Brexit talks finally get underway.

Reuters says traders are currently seeing a range-bound trade for gold, with resistance at $1,260 an ounce and support for the 100-day average price of $1,248, or the 200-day average of $1,240.

Gold price could rise to $1,300 on political uncertainty

6 June

The gold price was close to its highest levels in 2007 this afternoon, raising the possibility it could top $1,300 an ounce as political uncertainty linked to the UK, Europe and the US mounts.

Spot gold was a little below $1,293 an ounce after earlier hitting around $1,294.

"Generally light positioning and numerous upcoming geopolitical events should continue to underpin demand for the metal," Sam Laughlin, a senior precious metals trader at MKS, said in a note reported by Reuters.

He added that targets for the metal were now "extending to the 2017 high around $1,295 and the psychological level of $1,300 above this".

Today's move up is attributed to a fall in Treasury yields and the dollar in response to "political uncertainty from the United States to the Middle East", reports Reuters.  

Gold is negatively correlated to the dollar, against which it's held as a hedge. It also tends to benefit from political anxiety due to the belief that it's a safe haven" in times of stress.

A "political rift" between Saudi Arabia and its allies and Qatar "may force oil prices lower and remove some of the inflationary pressures" that could prompt interest rate rises. 

Gold is also inversely correlated to interest rates as it doesn't offer an income yield and therefore loses ground when rates are higher. 

Elsewhere, a political "super Thursday" looms: "British voters will also go to polls in an increasingly unpredictable general election, the European Central Bank is due to meet and… former FBI director James Comey will testify before Congress".

Reuters adds: "The events all have the potential to boost the safe-haven appeal of bullion, which is often used as an investment option during times of political and financial uncertainty."

Gold prices respond to poor US jobs data

5 June 

The gold price jumped by more than one per cent on Friday and jumped again this morning as it hit its highest level in six weeks following a weak US jobs report on Friday.

Spot gold rose by 1.1 per cent in New York in the final trading session of last week. At the time of writing, it is up by 0.3 per cent for the day at above $1,280 an ounce.

Reuters says the metal peaked at $1,282 an ounce earlier this morning, its highest level since 21 April.

On Friday, the US Labor Department announced the economy had added 138,000 jobs in May, a figure well below the 180,000 expected by economists.

"Official job creation figures for March and April were also revised down," says the BBC.

Strong jobs growth is one of the main indicators of a steadily improving US economy. As such, the official monthly updates are keenly watched for signals of the likely path of US interest rates.

If employment, and the economy in general, continue to improve, rates rises might gather pace. This would be bad news for non-yielding gold, whose opportunity cost goes up when rates are higher.

Friday's figures are being interpreted as a sign that the path of rates rises could be slower.

Reuters says that political anxiety linked to the London terror attacks at the weekend and the tightening UK general election polls is "supporting" gold's advance.

The BBC reports, however, that the unemployment rate in the US fell again last month to 4.3 per cent, meaning its apparent cooling could be a sign of the economy approaching "full employment".

Traders still believe a rates rise is very likely to happen soon. Market bets on a second rise this year at the Federal Reserve's June meeting next week are running at 95 per cent, says the Financial Times.

This in turn suggests that if the central bank believes the jobs data miss is sufficient reason to keep rates on hold again, the market could undergo a sizeable correction that would be likely to push the yellow metal higher again.

Gold price surges as crisis engulfs Trump 

18 May 

The gold price is surging on renewed safe-haven demand as a major crisis engulfing Donald Trump delivers a sizable hit to the stock markets.

Talk of impeachment hangs in the air in Washington following allegations over possible links between the administration and Russia and former FBI director James Comey's accusations that the US President tried to interfere with a bureau investigation into former national security adviser Michael Flynn.

Markets have risen since Trump's election last November in order to factor policies that could stimulate the economy, including a radical programme of tax cuts and infrastructure spending.

"The news out of Washington is alerting markets to the rising implementation risk associated with the pro-growth policies that have already been priced into markets," Mohamed El-Erian, chief economic adviser to Allianz, told the Financial Times.

"The more this occurs, the greater the downward pressure on stocks, the dollar and government bond yields."

Yesterday, the S&P 500 fell 1.8 per cent, while the volatility index, a measure of market fear, jumped 45 per cent and the dollar "slid to its lowest level since Trump was elected".

Gold, on the other hand, was up close to $30 to hit a two-week high of $1,264 an ounce. Spot gold was holding around $1,255 at the time of writing.

Trading had been recovering recently as a result of geopolitical tensions relating to Trump's rhetoric over North Korean missile tests, but had settled somewhat of late.

Gold price bounces back as US economy disappoints

16 May

The gold price hit a two-week high yesterday as it bounced back for the fourth consecutive session on the back of poor US economic data.

Having tempered some of those gains overnight, trading rose again this afternoon and was 0.5 per cent higher at $1,235 an ounce.

Gold had been under pressure following the apparent subsiding of global political uncertainty with the election of Emmanuel Macron in France and the cessation of rhetorical hostilities between US President Donald Trump and his North Korean counterpart Kim Jong-un.

As the metal is a store of value in times of stress, it had previously benefitted from "safe-haven" buying.

However, says Reuters, some of that global political tension has returned with North Korea launching another missile test, accusations that Trump leaked state secrets to Russia and the massive "ransomware" cyber attack around the world.

But gold is mostly reacting to a fall in the value of the dollar, which the Financial Times says hit a five-month low today on the back of poor economic data.

Included in the weak recent figures were underwhelming reports on inflation and retail sales on Friday, which both missed analyst expectations, and a drop in New York manufacturing output.

Gold is often held as a hedge against the currency and consequently is negatively correlated to the dollar. Weak economic data also counts against the case for more rapid interest rate rises and non-yielding assets such as gold do better when rates stay low.

"Spot gold may rise more to $1,245 per ounce, as it has cleared a resistance at $1,233," says Reuters technical analyst Wang Tao.


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