Gold: Keeping firm and looking for an upside catalyst

Key drivers for gold in the form of weaker USD, well contained real interest rates and the Fed funds rate have been supportive for much of this year, but the gold-supportive USD has been offset by the fear that real yields and the Fed funds rates will increase significantly, explains Bart Melek, Head of Commodity Strategy at TDS.

Key Quotes

“As such, the metal is vulnerable to selloffs, as we have witnessed last Friday when it tumbled on massive volume as some $4.2 billion worth was sold — over 30k contracts or around 10% of a normal days' activity.”

“The good news for gold is that an increasing amount of market players are advocating the investment in the yellow metal as a hedge against both market and geopolitical instability. Renewed threats from North Korea's Kim and a confrontational US President are seen as playing a nuclear game of chicken with each other. This, along with an equity market that is priced for perfection are prompting some to seek the safety of gold. On the fiscal side, the likelihood that the US will not be able to pass its oft-cited and promised Tax cut plan in a prompt manner is also helping gold.”

“The lack of fiscal stimulus both threatens equity valuations and increases the likelihood the US central bank will be more dovish that advertised, reducing the cost of holding precious metals. Indeed, as of the end of September, Bridgewater Associates, the world’s largest hedge fund, had increased its holdings in SPDR Gold Shares almost seven-fold, and more than tripled its stake on iShares Gold Trust, a regulatory filing showed. The fund recommended investors consider placing 5 percent to 10 percent of their assets in gold, citing political and economic risks.”

“The combination of a lackluster USD, geopolitics, equity markets that are priced to perfection and low real rates suggest we could see gold attempting to get back to $1,306/oz before the year is out. While much will depend on equities and how the Trump administration is progressing on the tax reform file, the yellow metal could well test the mid-$1,300s if uncertainty grows.”

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.