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Gold prices are on surge amid building optimism among global investors over U.S-China trade talk. The increase in trade talks between the U.S. and China to reach a resolution is putting the pressure on the dollar. The dollar index, which tracks the movement in dollar, fell and supported the gold prices as expensive dollar decrease a return on non-interest-bearing gold, a fall in it supports the gold prices.
The dovish stance of U.S. Federal Reserve to keep the rate unchanged over the risk associated with high inflation along with concerns over global economic slowdown, has further supported the gains in gold.
The U.S-10-year bond yield-to-maturity has also decreased, which marks an expensive bond price as price and yield moves inversely proportional with respect to each other, which has further supported gold prices.Â
In the past, events of depreciating global currencies and expensive bond valuation has led to a cap in returns from different assets class. The global stocks were also moving on expensive valuation and fell to mark a decrease in holding returns. The decreasing return from other assets marked a rise in gold prices and supported the prices, as in the absence of return from other assets, gold marks a price appreciation.
However, in the present scenario, a sharp recovery is noticed in various benchmarks, which tracks a performance in the overall activity in economy like Dow-Jones Industrial Average (DJIA) and in turn this is capping the gold appreciation. Thus, gold is still unable to breach its previous 10-month high which was marked earlier in the week.
In the upcoming front, the market participants will be eyeing on the FED monetary policy report and public addresses from various FED members to gauge the direction in gold prices. A more dovish FED than expectations of market participants will further support gold prices, and a hawkish stance will mark a pressure on gold prices.
The FED stance over the interest rate will be hampered by the U.S. economic activity and sorting clouds over the U.S-China trade resolution. The delegation from both the major economies is currently holding dialogues to strike a deal and end the long-standing trade war, which has hampered their respective economies.
On the economic activity gauging indicators front, the market participants are eyeing on USD final Wholesale Inventories which is reported on a monthly basis and was reported at 0.3% in the previous month, actual more than forecast will support the gold prices and exert a pressure on the dollar. The upcoming CB consumer confidence data, which tracks the confidence of citizen on the domestic economy will also act as a major indicator to gauge the direction on gold. The index was reported at 120.2 previously any fall in the index will mark a rise in gold prices.
The FED Chairman Jeremy Powell will also testify the stance on interest rate and is something market participants will be watching very closely to reckon the direction of gold prices. All the indicators and events are due for next week.
The answer to our question if the gold will get its lustre back, is dependent upon the discretion of future events and the related market behaviour and response to the outcomes.
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