Spot gold edged up on Monday, hitting a session high of $1,563.96 an ounce to close at $1,563.86. The move comes after geopolitical concerns over a weekend missile attack in Yemen boosted gold’s safe-haven appeal, while pre-spring festival buying also provided support.
Ajay Kedia, of Kedia Advisory in Mumbai, said: “Chinese New Year is coming, so there is some buying interest. The market is up because of central bank buying and geopolitical risks such as a missile attack on Yemen, which support gold prices.”
Houthis, allied with Iran, attacked a military training camp in the Yemeni city of malibu on Saturday, killing dozens of people.
Separately, three katyusha rockets fell into Baghdad’s green zone without causing casualties, sources said on Monday. Gold briefly rose about $4 on the news.
Gold is considered a safe investment in times of political and economic uncertainty.
“Investors are clearly focused on longer-term dynamics, which should be positive for gold in a low-interest-rate environment, central bank easing to help support economic growth and subsequent dollar weakness,” said Daniel Hynes, an analyst at ANZ.
The fed holds its first policy meeting of the year later this month and is widely expected to keep interest rates on hold.
The fed cut rates three times last year before deciding to keep them unchanged in December. Lower interest rates encourage people to buy interest-free gold.
However, limiting gold’s gains, Asian stocks held near 20-month highs, buoyed by continued gains in global stocks and strong U.S. economic data.
Data on Friday showed U.S. housing starts rose to a 13-year high in October as overall activity rose and factory production increased for a second straight month.
Trading was light as U.S. markets were closed for a holiday.
Colin Cieszynski, the chief market strategist at SIA Wealth Management, expects the market to remain neutral. “Gold has made the necessary corrections as political tensions ease and may now return to a consolidation pattern around $1,550.”
Spot palladium returned to a session high of $2,582.19 an ounce before falling back to as much as $100 to $2,482.29 and trading just above the 2,500 level.
The technical side of palladium suggests the rally is overdone, with its RSI index topping 90 for a second straight day. A reading above 70 usually signals that an asset may be overbought, and palladium has been at that level for two weeks without a correction.
Last week, one Wall Street hedge fund manager was quoted as saying, “right now, Wall Street is hardly hearing bears on palladium.”
Citi believes current supply constraints are keeping palladium at a high backwardation, with prices hitting $2,500 an ounce by mid-2020 as inventories fall.
Standard chartered precious metals analyst Suki Coope expects palladium to average $1,653 an ounce by 2020 because of the current rapid rise in prices and too much speculation.
COMEX gold futures closed up 0.02 percent at $1,560.6 an ounce.
Monday trend statement
Spot gold fell slightly after opening at $1556.20 an ounce in Asian trade on Monday and soon hit a session low of $1556.05 before trading higher in volatile trading. The bulls continued to rally ahead of the European open, accelerating around $4 in the short term and climbing above the $1,560 / oz mark. Since then, gold has retreated slightly from its high to hover around $1,560 an ounce. On Wall Street, gold briefly rose about $4 to a fresh session high of $1,563.96 before settling near that high at $1,563.86.
Spot gold was trading at $1556.20 per ounce in Asia Monday morning, dipping as low as $1556.05 per ounce and rising as high as $1563.96 per ounce to close at $1563.86, up to $6.66, or 0.43%.
Fundamentals favorable factors:
- The international monetary fund on Monday cut its global growth forecasts for 2019, 2020 and 2021, warning that the outlook for the global economy remained weak with no clear sign of turning the corner. The IMF’s new managing director has warned that the global economy risks sliding back into a depression driven by inequality and turmoil in the financial sector. The IMF has become less optimistic about the economic outlook, helping to boost safe-haven demand for gold.
- Three katyusha rockets fell into Baghdad’s green zone, with no casualties, sources said on Monday.
- At least 80 Yemeni soldiers have been killed and 150 others seriously wounded in a missile attack on a base of government forces in maria province Sunday.
- On Wednesday, U.S. producer prices rose to an annual rate of 1.3 percent in December, up from 1.1 percent but below expectations. Spot gold rose $2 in the short term after the data.
The U.S. labor department’s latest non-farm payrolls report, released on Friday, was a “surprise”, with the U.S. economy adding 145,000 jobs in December, the lowest since May 2019. Meanwhile, hourly wage rates and annualized rates fell short of expectations. The only bright spot was that the unemployment rate was in line with forecasts of 3.5%, a fresh 50-year low.
Fundamental negative factors:
1. US President Donald Trump and his French counterpart Emmanuel Macron have agreed to continue negotiations on a digital tax until the end of the year, French diplomatic sources said. Mr. Trump has agreed to suspend tariffs until the OECD digital tax debate is over. A temporary easing in the U.S.
2. On Friday, U.S. housing starts hit a 13-year high at an annualized rate of 16.9 percent in December, well above the previous reading of 3.2 percent and expectations of 1.1 percent. Meanwhile, permits for new housing starts rose 5.8 percent from last year.
3.Us retail sales rose 0.3 percent in December, compared with an expected rise of 0.3 percent and a previous gain of 0.2 percent, according to data released on Thursday. Comments pointed to a third straight month of growth in U.S. retail sales.
4. The number of Americans filing new claims for state unemployment benefits fell to 204,000 last week from 216,000 expected on Thursday, down from 214,000. U.S. jobless claims fell for a fifth straight week last week, ending a rally in early December and falling more than expected, suggesting the labor market remains strong despite a recent slowdown in job growth.
5. The Philadelphia fed’s manufacturing index, released on Thursday, rose to 17 in January, well ahead of 0.3 and ahead of expectations of 3.8. Zerohedge, a financial blog, said the explosion in the Philadelphia fed’s manufacturing index reversed the index’s recent collapse.