Gold News Bites
(Kitco News, Monday, Aug 5th, 2019) ) – Gold prices have room to rally higher as markets re-evaluate the Federal Reserve rate cut expectations and investors search for safety amid rising trade tensions, according to precious metals analysts.Trade concerns have boosted gold prices to fresh six-year highs this week with December Comex gold futures last trading at $1,455.10, up 1.58% on the day. Overall, gold is up 2.8% for the week.
The market felt a wave of confusion and fear after U.S. President Donald Trump announced a 10% tariff on the remaining $300 billion of Chinese imports starting on September 1. More trade tensions could mean a more dovish Fed going forward according to some analysts.
“Ultimately what we are likely to see are expectations of a deepening slowdown materializing in the aftermath of the announcement from the White House,” TD Securities head of global strategy Bart Melek told Kitco News on Friday. “The Fed may have to get a bit more enthusiastic on the rate cuts … and do a bit more than the market thought.”
Uncertainty around trade is giving the Fed ammunition to cut rates further, said INTL FCStone independent commodity consultant Edward Meir.
“Trade tensions will likely force the Fed to lower rates because [the U.S. central bank] is very concerned with the trade picture. In a way, Trump is indirectly pressing the Fed to lower because the more problems he creates on the trade front, the more inclined they will be to lower rates,” Meir stated.
It is becoming more about the trade war than the macro data for the markets, especially when it comes to future Fed moves.
“With renewed threat on trade, the market is definitely re-evaluating the Fed’s reaction function. Perhaps U.S. data is less important and it is becoming more about trade and geopolitics, which provide further upside for gold in the near term,” said Scotiabank commodity strategist Nicky Shiels.
Lower Yields, Higher Gold
Global bond yields are also playing a critical supporting role for gold prices, providing further upside, analysts pointed out.
“With U.S. yields taking a huge move lower and entire German curve sitting in negative interest rates territory, it is just a matter of time before we see further upside in gold prices,” stated Shiels.
The global move towards easing monetary policies is impacting the bonds worldwide, noted Meir.
“The path of least resistance for gold looks to be higher because of the global wave of easing we are seeing by the majority of central banks and credit markets themselves, where yields are plummeting across the board,” he said. “German bond market is all in a negative territory from the short-term to the long-term. A lot of European sovereign papers also in negative territory. We are not there yet, but the U.S. 10-year yield is at a two-and-a-half-year low.”
Posted by :
Jack Dempsey, President
401 Gold Consultants LLC
jdemp2003@gmail.com