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 rallies from two-month low but 'will crash this summer'

10 May

After plummeting to a new two-month low yesterday, the yellow metal is bouncing back but analysts still reckon that gold is heading for a more pronounced correction.

In fact, one expert has predicted gold "will crash this summer".

Spot gold fell to a low of $1,214 an ounce on Tuesday as bearish sentiment after the Fed meeting last week continued to drive the market.

The US central bank has hinted that weaker economic data is likely to be transitory in comments that many traders believe will clear a path for another interest rate rise as early as June.

Rising rates boost the value of yield-bearing assets and are typically a boon for the dollar, both of which diminish the relative appeal of non-yielding safe-haven gold.

Today's $10-an-ounce rebound is in part due to renewed safe-haven demand after Trump's sacking of FBI chief James Coney and the news that North Korea intends to conduct another missile test.

Any suggestion of domestic strife for the US President or a heating up of the tensions with North Korea gives investors reason to be fearful of a hit to market sentiment.

Markets are less fearful than they have been at any time since 1993 – as measured by the "volatility index" – and global indices are at record highs.

This is one of a number of reasons given by Market Watch columnist Jeff Reeves why gold will tank this summer.

Reeves also cites the fact that wider commodities markets are struggling, gold miners are increasing supply at a time when demand is low and gold bugs have been "burned" regularly of late.

In the near term, "gold's slide could perhaps extend to $1180-1200, an area of good technical support," INTL FCStone's analyst Edward Meir told Reuters.

Is the gold price heading for $1,200? 

4 May

The gold price is sliding past its six-week low following the US Federal Reserve's decision to hold US interest rates.

After recent lacklustre economic data, the open markets committee was not expected to repeat March's rise, the second increase in three months.

Growth underwhelmed at an annual rate of 0.7 per cent in the first quarter and the new jobs total slumped to 98,000 last month.

As a result, traders placed a 95 per cent bet on a hold at between 0.75 to one per cent for the benchmark federal funds rate.

However, announcing the rate hold yesterday, the Fed Reserve said it viewed "the slowing in growth during the first quarter as likely to be transitory" and still expected economic activity to "expand at a moderate pace", says the BBC.

With the news that jobs rates are expected to pick up again and unemployment reaching near-record lows, traders renewed their bet on a rates hike in June, says Reuters.

That sent the dollar to a two-week high and accelerated a gold decline that set in last week.

Spot gold fell 1.5 per cent yesterday and was another 1.4 per cent down today, reaching $1,228 an ounce – its lowest level since 16 March.

Jeffrey Halley, senior market analyst at OANDA, said: "With the safe-haven premium coming off gold, there was enough to break the camel's back.

"Any small rallies are going to get sold and gold is set for a deeper correction towards the $1,200 level."

INTL FCStone analyst Edward Meir also cited the $1,200 threshold, but predicted "consolidation" around this level would prevent gold from falling any further "any time soon".

Gold price at three-week low despite expectations of a rates hold

2 May 

The gold price slipped one per cent to a three-week low yesterday, despite expectations for a rates rise from the US Federal Reserve this week remaining low.

Spot gold fell one per cent to $1,254 an ounce yesterday and was only one dollar higher at $1,255 an ounce today.

The Fed is expected to raise interest rates several times this year as the US economy gradually improves. President Donald Trump has also promised a major package of tax cuts and spending.

March's rise was the first this year and the third since the financial crisis.

However, while hopes for an increase in the summer are still high, expectations for a rise at the May meeting this week are running at just five per cent, says TheStreet.

It cites a fall in first-quarter GDP growth to 0.7 per cent, a slip of 0.1 per cent in both headline and core inflation, while jobs growth slowed to 98,000 last month, although unemployment continues to be at its lowest level since 2007.

"All of this weak, high-profile macroeconomic data puts the [Fed] in a tough position," it adds.

"To blindly stay on track without addressing the apparent weakness, or attempting to paint it as temporary, would make the committee appear out of touch with reality."

Rising rates tend to hurt gold, which does not offer an income yield and so bears a higher opportunity cost than income-bearing assets.

Trading is instead being hit by a receding of perceived risk factors that had spurred gold to break its six-year downtrend last month and close in on $1,300 an ounce.

One of those - the threat of a US government shutdown because of a budget impasse - has been removed after a deal in Congress yesterday.

Concerns over North Korea and the French presidential election leading to another anti-EU victory have also subsided.

"Risk appetite isn't collapsing here," Bart Melek, head of commodity strategy for TD Securities in Toronto, told Reuters. "Gold has been a little bit overdone."

Gold price retreats after 'breaking six-year downtread'

19 April

The gold price soared close to $1,300 an ounce yesterday and above a trend line that has tracked consistent decline for the metal for six years.

Spot gold was changing hands at around $1,295 an ounce at one point but has since given up much of its gain and was this afternoon trading below $1,280.

That implies the resistance level around $1,290, marking the downtrend line, is holding, although it is still significant that gold rose that far at all.

Gold has been surging of late amid a range of geopolitical tensions and experts are now predicting it could rise above $1,300 before the year ends.

Danish bank Saxo Bank, which published a note showing the resistance around the $1,290 mark, has a "bullish bias" and predicts gold could reach $1,325 this year.

In what presents an opportunity for traders, however, it also forecasts profit-taking and a relaxation of global tensions could send the price lower in the short-term before embarking on a prolonged upward move, says Mining.com

Mark To, head of research at Hong Kong's Wing Fung Financial Group, told Reuters: "The whole situation for gold is more than optimistic because of the geopolitical tensions aroused by North Korea and with the interest rate hike expectations coming down.

"We see $1,280 as the gravity around which the trading range will be built and prices will move between $1,270 to $1,310."

Gold price in 'pocket of opportunity'

18 April 

Global unrest sees trading hit another five-month high – with predictions of $1,300 to come

The gold price is currently enjoying a "pocket of opportunity", says City AM, hitting another five-month high of above $1,290 an ounce overnight and settling at a still-lofty $1,284 this afternoon in London.

According to Mining.com, this is being driving by the weaker dollar, as fears over US President Donald Trump's bombast over Russia, Syria and North Korea rattle markets.

Some of the eventual softening related to comments from US Treasury Secretary Steven Mnuchin that tax reform remains high on the agenda.

In general, gold has been rising to levels not seen since the election of Trump last November mainly because of the upheaval in global politics, which could hit stability on markets. The metal is a traditional "safe-haven" store of value at times of stress.

Kieron Hodgson, a commodity and mining analyst at Panmure Gordon & Co, told City AM "factors are in place to push the gold spot price higher".

The paper adds: "Panmure Gordon isn't waiting, and has upgraded its gold price forecast to $1,300 per ounce (from $1,225 per ounce) for 2017.

"For 2018, they also see a rise to $1,350 per ounce (from $1,200 per ounce)."

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