Weak US Dollar in Global Markets Underpin Demand For Precious Metals

Gold traders near 8-month highs on weak US dollar in broad market as investors await Sino-U.S. trade talk related headlines for directional cues.
Colin First
Gold daily chart, January 22, 2019

Precious metals continue to trade positively in the broad market supported by broad-based weakness surrounding US Greenback on dovish Fed comments. While risk appetite in relatively high in the broad market, weaker USD in the broad market helped boost participation from emerging markets underpinning demand for precious metals. US Fed yesterday released a statement which was high in contrast to prior updates. MPC committee decided to take a wait and watch approach on U.S. economy and stated that they may even reduce rates depending on the economic scenario as opposed to delayed rate hike plans announced earlier. Further, Jerome Powell’s comments that Portfolio reduction will depend on U.S. economic activity and that economy has slowed down owing to an ongoing trade war and the recent partial shutdown of U.S. government weighed down US dollar significantly.

Crude Oil Price Declines Slightly on EIA Update

Powell stated that balance sheet reduction program may end earlier than expected as U.S. economy is slowing down resulting in US Dollar losing ground against major risk assets and emerging market currencies. Investors now await Sino-U.S. trade talk outcome for directional cues as a negative outcome will lead to a further decline for US dollar and steady long term demand for safe-haven assets. However, increased price of precious metals continues to limit activity in major gold markets – China & India. As of writing this article, spot gold XAUUSD is trading at $1322.06 per ounce up by 0.18% on the day while US gold futures GCcv1 were trading at $1326.10 per ounce up by 0.80% on the day. Meanwhile, spot silver XAGUSD is trading at $16.075 per ounce 0.15% on the day. Crude oil price trades range bound post two consecutive sessions of a sharp rise in value.

The downside move is limited owing to the influence of OPEC’s production and supply cut enforcements and U.S. Sanctions on Venezuelan crude oil which has caused a temporary disruption in global supply. While crude oil opened on positive note and traded in green in early Asian market hours, EIA’s report which hinted that stockpiles continue to rise despite reduced supply from Saudi Arabia to the U.S.A. as part of OPEC’s production cut. This hinted that U.S. production of crude is near record highs and is likely capable of offsetting any supply disruption in the market even if only for short duration of time. This caused crude oil price in the spot market to fall and as of writing this article, spot US Crude oil WTIUSD is trading at $53.97 per barrel down by 0.15% on the day.

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