Gold & The US Dollar, Friends Or Foes

Gold continued to ease moving closer to Janet Yellen’s speech at the Jackson Hole symposium. Gold is down over $5 touching its lowest point in weeks after more positive US eco data. Gold is trading at 1324.65 with silver taking cues to reach 18.523. Platinum is also in the red at 1081.95. In an unusual happening gold has declined at the same time as the US dollar. The greenback is down 9 points at 94.54.

There have been mixed signals this week from Federal Reserve policymakers, leaving the market anticipating more direction at next week’s annual meeting of central bankers from around the world in Jackson Hole, Wyoming, at which Fed Chair Janet Yellen is seen likely to cement expectations for a slow pace of rate increases.

“We have had conflicting statements from the Fed and its created quite a lot of confusion as to the thinking, so now the market is waiting to hear what Yelland’s thoughts on the world and economic growth,” Ole Hansen, head of commodity strategy at Saxo Bank.

The rally that sent gold to its best first half in almost four decades is slowing amid signs the US economy is resilient enough to face an increase in interest rates, despite risks to global growth. Fueling that speculation are voices from policy makers who favor the rate hike, including Mr Williams and New York Fed president William Dudley. Their comments boosted the dollar, curbing the appeal of commodities for holders of other currencies.

“Today, gold suffers from Fed indecision, pulled down by higher rate outlook fostered by many Fed speakers” George Gero, a managing director for RBC Wealth Management in New York, said in an e-mail. “We need higher open interest, higher closes, higher moving averages to attract asset allocators.”

Mining Weekly reported that the World Gold Council (WGC) believes that an “entirely new class of gold investor” could emerge because of the significant global increase in the interest in gold stocks, following the Brexit vote – the British exit from the European Union (EU).

“As a high-quality, liquid asset, we believe gold will provide investors with a hedge against market uncertainty, as well as economic, political and intervention risk,” states the WGC, adding, however, that there are no precedents for an economic scenario such as Brexit.

However, the council notes that other systemic risk events offer some insight into the role that gold can play in wealth preservation. For example, the value of gold rose by 12% as fears of a widespread meltdown increased during the European sovereign debt crisis of 2010.

Although expectations for a rate hike in the U.S. have increased, there still remains a 50-50 chance that it will materialize. For this reason, one economist expects gold strength to remain intact.

“Despite the improving US-centric fundamentals, we expect investors to remain long in gold given the need to insure against wildcards into the year, namely the growth risk from Brexit into 2017 and the upcoming November’s US,” noted Barnabas Gan, commodity economist for the OCBC Bank, in a report.

“As such, despite our expectation for the Fed to hike rates by 25bps in December, we think that sustained risk aversion from the suspense will continue to lift gold demand on safe haven demand.”

The once-named top Bloomberg gold forecaster upped his outlook in June and maintains that gold prices will trade at $1,350 an ounce by year end if the Federal Reserve does hike rates in December. If not, prices could go up to $1,400 an ounce, he added.