Why Are Gold Prices Inching Up?

Why Are Gold Prices Inching Up?

Gold prices soared, with Spot gold (XAU/USD) surged from the level of $1281.33 (which marked the day’s low on 5th March 2019) amid China’s downgrade on its GDP growth target from 6.5% to 6% for the year 2019. The Chinese government downgraded its GDP growth amid lower domestic demand and unresolved trade spat.

However, the U.S-China trade talks are making progress, which may further help the Chinese government to re-estimate the proposed growth target, which will be unveiled at the annual parliamentary session in March 2019.

Another factor which supported the gold prices is the Federal Budget Balance, reported at 8.7B for February 2019 as compared to 17.3B expectation, which in turn supported the gold prices. However, the gains were still capped as the budget marked a surplus for the month of February 2019, in comparison to a deficit of 13.5B in January 2019.

The U.S-10-year, yield-to-maturity (or market discount rate) also declined from the previous close of 2.719%, which marked a decrease in the expected rate of return by the market participants and supported the bond prices which further surged. The expensive bond valuation also provided an impetus for gold prices.

The rising tension between U.S. President Donald Trump and North-Korea dictator Kim Jong Un, over no visible outcome on the denuclearization plan of the northern peninsula is further supporting the gold prices. The North-Korean dictator Kim Jong Un previously promised to bring denuclearization plan to success, but till the recent meeting of U.S President and Kim Jong Un in Hanoi, no progress has been made to achieve the promised goal on northern peninsula, which in turn supported the gold prices.

Apart from the North-Korea issue, the U.S. President Donald Trump cancelled the war-games (joint military exercise) with South-Korea, with the belief that the war-games are not required and avoiding it will reduce the impact on the U.S. economy, which in turn engaged a belief in South-Korea, that the U.S. government is inclined towards the rival North-Korea.

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In the absence of any visible outcome from North-Korea summit and developing bitterness between the U.S. and South-Korea, gold prices found support, as the events led towards an environment of uncertainty, which is required by the bullion investors.

In the past event, gold prices fell sharply over the building resolution, in the long-standing tariff war between the two major economies of the world. The respite sign in the U.S-China trade war exerted the pressure on gold prices amid building optimism among market participants and a high rate of return from the different asset class.

However, to further gauge the direction of gold prices, market participants are keeping a Hawkeye on the developments between these countries and their impact on the global economy.

On the data front, the market participants are waiting for ADP Non-Farm Employment change data. The lower number is favourable for gold prices, and market participants are expecting it to report at 190K for February 2019, down as compared to 213K reported in January 2019.


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