Gold set for further rally as momentum falters for U.S. rate hikes

Gold set for further rally as momentum falters for U.S. rate hikes

By David Brough

June 5, 2017 – Gold could be set for a further rally as momentum for further U.S. interest rate rises has slipped after the latest weaker-than-expected jobs data in the world’s biggest economy.

Signs of a faltering U.S. economic recovery mean that the Federal Reserve, the U.S. central bank, could be less aggressive in its interest rate setting policy in the coming months.
However, a rise in U.S. interest rates next week (the second this year) does look inevitable.

Receding pressure for a series of rate hikes this year is seen as bullish for bullion, as gold does not bear interest. Further signals of setbacks to the U.S. economic recovery could extend gold’s latest surge.

Bullion hit U.S.$1,281.95 per ounce, its highest level in more than six weeks, on June 5. Gold had jumped more than one percent on June 2 after data showed that U.S. job growth slowed in May.

Nikos Kavalis, director of independent consultancy Metals Focus, was quoted by Bloomberg as saying gold would probably rise to a four-year high above U.S.$1,400 an ounce this year, while Toronto-Dominion Bank’s Bart Melek said gold could touch U.S.$1,300 and average U.S.$1,275 in the fourth quarter.

Goldman Sachs has pushed back its forecast for a third U.S. interest rate rise this year to December, from September.

The reason for the change is that “the (Fed) committee will prefer to wait for clarity on the outlook before implementing a third hike this year – particularly given signs of slowing job growth and the recent drop in core inflation.”

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Another factor supporting gold is global political turmoil and uncertainty, with the June 3 terror attack in London seen as boosting bullion’s attraction as a safe-haven asset. The ongoing investigation into any possible improper links between members of the Trump administration and Russia, could also drive investors to gold, especially if it dampens the administration’s efforts to stimulate the U.S. economy.

Uncertainty over the outcome of the UK’s June 8 general election could support gold prices. The election result is now expected to be much tighter than previously predicted. The extent of bullion’s near-term recovery will be linked to how the U.S. dollar, in which gold is denominated, continues to react to the disappointing U.S. jobs data. A further weakening of the dollar this week would put more fuel into bullion’s rally.

According to FXStreet.com, from a technical perspective, there is no resistance now between gold’s present level and the April high of U.S.$1,295.70 per ounce.

Money managers increased long positions in U.S. futures to the highest in four weeks in the five days to May 30 after raising them by the most in almost a decade a week before, Commodity Futures Trading Commission data show.

Meanwhile, holdings in the SPDR Gold Trust, the world’s largest exchange-traded fund backed by bullion, have risen by more than 6 percent since the end of January to 851 metric tons as of June 2.

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David Brough is IJL’s Precious Metals and Gems Editor. David is Co-Founder and Editor of digital magazine Jewellery Outlook and writes monthly precious metals and gemstones Market News for Retail Jeweller magazine. He was a Reuters correspondent and editor for more than 30 years, including 16 years as a foreign correspondent, and covered commodity markets extensively. David won the United Nations A.H. Boerma Award in 2002-3 for his reporting on hunger issues. He graduated from St. Andrews University in Scotland with a MA (Hons) in Economics and French, and has a Certificate in Financial Markets from the Securities Institute of Australia. He speaks fluent French, Spanish, Portuguese and Italian.

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