Gold price hits new high as yellow metal is 'back in vogue'
-By theweek
Gold's upward move continued yesterday, with prices reaching a new one-year high. The yellow metal rose $53.20 an ounce to $1,247.80, the highest price since February 2015 and an 18 per cent jump since the start of 2016.
"Gold is back in vogue as investors seek out a safe haven amid growing global volatility," said Peter Koven at the Financial Post.
Its performance is the "polar opposite" of most other commodities, which are down sharply, adds Koven, but the question is "whether this gold rally will have legs, or whether it will fizzle out like numerous others over the past few years".
The surge comes amid wobbling global stock markets and a weakening US dollar. Jittery markets were further fuelled on Wednesday, when Janet Yellen, the chairman of the US Federal Reserve, hinted there could be a delayed return to rising interest rates.
"Investors typically put money into gold when they are worried about the prospects for the stock market," said Camilla Canocchi at This is Money. "The downside is that there is no interest paid on gold so investors can only make money when they come to sell it."
FXTM research analyst Lukman Otunuga said the "heightened concerns and mounting pessimism" over the state of the global economy have "soured risk appetite, consequently encouraging risk-averse investors to flock to safe haven assets such as gold".
Otunuga believes the levels could still appreciate to $1,300, last seen in January 2015.
Falling crude oil prices and escalating concerns about European banks were also cited as causes for the surge.
Gold price surges above $1,200 after latest markets rout
12 February
The gold price continues on its strong incremental advance, setting lower lows on a path to higher highs that overnight saw it decisively breach a key resistance level at $1,200.
On Wednesday, gold's spot price dipped back slightly in both the European and New York trading sessions, the Wall Street Journal notes, amid a brief relief rally in Europe and some profit-taking from the ongoing "safe haven" shift. But as the equities rout recommenced in Asia overnight, it resumed its upward trend.
The metal had been struggling to break through the $1,200 an ounce threshold identified as a key battleground to transform a "short-term rally" into a sustained upswing. Having done so, says Reuters, a wave of "stop loss" orders put in place by "short" traders who had bet on lower prices sent gold spiralling to above $1,220 this morning.
Markets are extremely jittery at the moment as investors panic over the prospects for the global economy. This was fuelled yesterday when the US Federal Reserve chairman, Janet Yellen, sounded a dovish note while giving her semi-annual testimony on the economic outlook to Congress, citing a likely hit on US growth from the slowdown elsewhere that could imply a delayed return to rising interest rates.
This is exacerbating the selloff of risk assets and a flight to perceived stores of value, such as gold and the Japanese Yen. The precious metal specifically is also benefitting from bets the Fed will not raise rates in March - or much at all this year - as this boosts its allure compared to interest-bearing alternatives, as well as from the resulting drag of the dollar, against which it is a hedge.
There are some who are cautious about the current rally, however, which they warn may be "overdone". David Govett, the head of precious metals trading at Marex Spectron, said in a client note that with big inflows flooding into gold and the market moving "long" – that is, betting broadly on higher prices – risks are now "shifted to the downside".
These risks include the possibility the current market turmoil turns out to be merely a tantrum and does not presage a significant economic downturn. In that event, the dollar would bounce back and interest rate rises return to the agenda – and traders would unravel their bets on gold quickly.
Gold price battleground shifts to $1,200
9 February
The gold price hit an eight-month high overnight, very close to $1,200 an ounce and establishing a new battleground that will determine whether the current rally turns into a prolonged upward trend.
After three consecutive annual falls during a bull market for equities and, latterly, the apparent return to an increasing interest rates, some analysts have ditched earlier predictions for gold prices to drop further. The Capital Economics think tank has called a price rise to $1,250, while Jeffrey Gundlach, the so-called "bond king", has forecast a surge to $1,400.
With equities drift that characterised the second half of 2015 evolving into a full-on rout and amid pessimistic warnings of a global recession, investors are rushing to safe havens – and especially gold. That expectations for a US rates hikes have dimmed and the dollar has slumped has only added impetus to the move.
On Monday, as global equities nosedived again, gold rose to its highest level since last June. In Asia overnight, the Japanese Nikkei recorded its worst one-day fall for nearly three years and the precious metal correspondingly soared to closed to $1,199 an ounce, the Financial Times notes.
This is where the climb peaked – and after sentiment settled a little in Europe this morning, the price hovered around $1,190. But the trajectory over recent weeks is clear: from a near seven-year low around $1,050 back in December, gold has been setting higher peaks and shallower troughs.
There is still a way to go before this positive move becomes something lasting, says analyst Daryl Guppy. Citing the four downward trends that dominate technical charts dating back to 2013, he says "traders are ready to switch to short trading as the market reacts away from resistance near $1,200".
That means rallies are likely to continue giving ground at this level and a sustained move above will be needed before investors will "go long".
"Now, the rally in gold has the potential to develop into a breakout… and become a new uptrend. But the strength and sustainability of the gold rally is still not clear," says Guppy. "This price activity may help to establish a fifth downtrend line in the fan pattern. Investors wait for proof that the price can move above and stay above $1,200. This will signal a new, sustainable uptrend."
Gold price roars to new high as traders digest jobs data
8 February
Gold prices fell back initially on Friday afternoon but ended the day on a high, vindicating predictions that a US jobs report would come to be seen positively for the precious metal.
The non-farms payroll report revealed the creation of 151,000 jobs in the US in January, a sharper fall from December's revised 262,000 than had been expected. But with wage rises picking up to 2.5 per cent and the unemployment rate actually falling further, to 4.9 per cent, the snap analysis focused on the positives and spot gold dropped from its latest three-month high of $1,161 an ounce to a session low of $1,144.
As the day wore on, however, that positivity began to fade. The report's headline drop was too high, while a stubbornly high rate of broader unemployment, which includes those seeking full-time work and under-employed on part-time hours, added to the sense given in a wide array of recent data that the US economy is not exactly firing on all cylinders.
Gold has been rising in 2016 so far, amid an equities selloff primarily because traders are extremely fearful the world economy, for which the US is a bellwether and to which it is intrinsically tied, is hitting troubled waters again. Weaker US growth and employment would also lead to the delay to interest rate increases that many are already predicting, which is good news for non-yielding gold.
So the metal bounced back strongly, eventually finishing at $1,173 in New York. This meant it recorded it best weekly gain since July 2013, of 4.9 per cent, the Financial Times notes, and it is now at the highest level since late October. There are those who believe the price could continue to surge this year to as high as $1,400.
Gold dipped a bit in a thin trading session in Asia overnight, falling to $1,165, before getting back into its upward swing and rising to $1,174 in Europe this morning. There seems little to stand in the way of its rally continuing, unless we get some underlying economic data that gives a stronger indication that a full-blown global slowdown is not on the cards.
