Max Keiser and Stacy Herbert
Max Keiser and Stacy Herbert
Gold is currently trading at $1282.45 per ounce, down 0.61% on the day. Over the past 6 months, gold is now in the black, to the tune of 9.80% or $115.10 per ounce. Over the past 30-days, the precious metal has made surprising gains of 5.29% or $64.80. The recent performance of gold has a lot to do with the strength of the US dollar and rising geopolitical uncertainty. The US dollar index (DXY) measures the performance of the greenback against a basket of 6 currencies.
Performance Metrics: Gold Steadily Rising as USD Wanes
Over the past 5 days, the US dollar index is down 0.28%, and it is down 2.73% over the past 1 month. For the year to date, there is a strong correlation between the weakening of the USD and the strengthening of gold. The dollar has slipped 5.33% for the year to date, and this has been met by an increase in the gold price. Gold is a dollar-denominated asset. A weakening USD is an incentive for foreign buyers of gold to purchase the precious metal.
The price of bullion is closely correlated with the decisions taken by the Federal Reserve Bank. The Fed has hiked interest rates multiple times since the global financial crisis of 2009. An era of monetary tightening has gripped the US economy, as the Fed seeks to capitalize on strengthening fundamentals with unemployment at 4.3%, and inflation steadily rising towards the 2% benchmark. The Fed is expected to raise interest rates by 25-basis points on Wednesday, 14 June 2017. The current probability of a rate hike is now at 95.8%, up from 90.0% on 1 June 2017.
The Trifecta Stabilizes Gold Prices During Election Week
A Fed rate hike indicates increasing optimism about the state of the US economy. The 12-member FOMC is convening on 13/14 June to decide on the federal funds rate. The gold price has been steadily increasing towards the $1,295 handle and it is eyeing the $1,307 level as the next price objective. The volatility of financial markets has imperiled the USD, but been beneficial to the gold rally. Several events have worked in gold’s favour, notably the UK general election, James Comey’s testimony on Capitol Hill, and the ECB (European Central Bank) meeting on monetary policy with Mario Draghi. Anytime there is uncertainty in markets, the price of gold rises.
A leading Lionexo trading analyst, Hamish J. Wallace believes that the gold rally hinges squarely on the Fed, ‘Gold’s vulnerability is determined by the performance of the USD. We have a weaker USD that may reverse on a Fed decision. Short-term, the precious metal may rise about $1,295 per ounce. If bullion can break through the critical $1,295 barrier, we will likely see increased momentum.’ There are some concerns that gold may reverse, much as it did in April when it rallied towards $1,295 per ounce. This is precisely what happened with the precious metal on Wednesday 7, June. Commodities traders believe that a pullback to $1,280 is indicative of negative momentum for gold.
Traders have been waiting for gold to breach the $1,307 resistance level so that it can continue rising towards $1,350 per ounce. This sentiment is shared with traders who have heretofore held net long on gold, with ETFs (GLD), gold shares and new Gold IRA investments. For the week ending Friday 9 June, many investors started to unwind their positions on gold, with August and October futures contracts lower. The price of gold dropped marginally to $1285.10 per ounce in Singapore on Thursday, 8 June. Barring surprise results with Congressional testimony, the USD or Brexit negotiations, gold is likely to trading a subdued fashion moving forward.