Gold prices fell Wednesday as investors started to renew hunger for risk and started pulling out of safe-have assets, but my midday they were holding steady, just waiting for a drop in rates to finally clear that stagnant hurdle.
Speaking to Kitco on the sidelines of the Vancouver Resource Investment Conference, Frank Holmes, CEO of U.S. Global Investor said investors should be looking at currency differentials right now, and “any type of a drop in rates, gold in a blink of an eye is $1,500”.
With that in mind, the Fed’s first monetary policy meeting of 2019, which will start next week, is where all the attention should be when it comes to gold.
But VanEck’s Joe Foster, portfolio manager for gold and precious metals strategy, thinks one of two things could happen. First, the Fed could hold on to its hawkishness and possibly push the economy into recession. Or, it could go dovish and stop tightening, which would weaken the dollar.
“Both scenarios would be favorable for gold,” Foster told Kitco.
If the Fed’s own hints are anything to go by, next week’s meeting will lean towards the dovish.
Last year, we saw the dollar rise as it overtook gold as the preferred hedge against trade tensions and other uncertainties, but 2019 might not play out the same way because all the Fed’s rate hikes are putting too much pressure on the dollar. Lower interest rates typically benefit gold to the detriment of the dollar.
The dollar hit a five-day low early on Wednesday, while stocks bounced up and down, trying to evaluate quarterly earnings results against the background of trade tensions.
The ICE U.S. Dollar Index (DXY) lost 0.2 percent, dropping to 96.127, while the euro gained strength, up to $1.1384 from $1.1362. Related: Latin American Stocks Back In Fashion For 2019
But Wednesday’s initial losses for gold were also partly reversed by the unshakeable trade tensions between the US and China, with Beijing vowing to respond decisively to Washington’s announcement that it would seek the extradition (from Canada) of the Huawei CFO Meng Wanzhou, who was arrested in Vancouver at Washington’s request on suspicions of violating sanctions with Iran.
At the end of the day, Societe Generale said in a note to clients that there are supportive factors for gold in the form of “renewed safe-haven buying and portfolio diversification as investors seek protection from market turbulence, potential recessions, and growing bearish sentiment”.
In the meantime, global growth worries are looking good for gold. The same fears that pushed gold up yesterday and equities down are still clear and present. Those fears became much more real when China released economic data showing that its economy only grew by 6.6 percent last year—the slowest pace since 1990. This alone is enough for gold holders to hang tight in the very least. Gold also got a boost when the IMF chimed in forecasting 3.5-percent global economic growth for 2019, which represents a downward revision from its earlier forecast of 3.7 percent.
Gold rose on that news Tuesday by almost 0.25 percent before paring some of those gains early on Wednesday. Now, it’s holding steady as investors straddle the fence between risk and safe-haven hedging.
By Fred Dunkley for Safehaven.com
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