Gold Prices - Waiting for an impetus or likely to de-rally?

Lately, gold prices have been seen to be touching a level of around USD 1331.10 amid the dollar index movement. Gold as safe haven re-started the rally in mid-December of last year due to global uncertainties such as US-China trade war and failure of any visible outcome from US-North Korean summit. The economic report from the International monetary fund (IMF) about a slowdown in global economics also provided the impetus to gold prices and we have seen some sharp gains in gold prices due to various such factors. Gold started its rally from USD 1210 in Mid-December and was then seen hovering around $1331 as global investors were seen to be adjusting for higher risk and reward appetite in the Dollar index.

 Factors putting pressure on gold prices: After a mid-cycle slowdown in global scenario, significant economies like USA and China are showing some recovery as per the latest data. After the 4-times consecutive increase in the interest rate by the Federal Reserve Board (FED), the market participants were expecting a dovish move by the FED. Coming to terms with the expectation, FED Chairman Jerome Powell maintained his stance and kept the interest rate unchanged, which in turn provided support to the dollar index and exerted the pressure on gold prices. The continuous rise in the US-10-year bond yield to maturity is showing the interest of market participants in better US economic outlook and is putting higher pressure on gold now.Â

China also reported that its Caixin services PMI slipped to 53.6 in January from 53.9. However, the result was better than the expectation of 53.3 which further provided impetus to the global economic growth outlook — the higher than expected data driven by a rise in new orders by exports. The composite index fell to 50.9 from 52.2. Overall the decline in the PMI's appears to be decelerating which is, in turn, pointing towards the better global economic outlook and putting some pressure on gold prices.

Market observations: SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund decreased its holding in gold by 0.50% to 813.29 tonnes on February 4, 2019. The SPDR Holdings declined for a second straight session. The changing sentiment was also reflected in overnight update wherein spot gold was seen edging down by 0.4% to USD 1310.37 per ounce.

Market Events which can affect gold prices:Â The extent of recovery in global economics has shown no robust indicators which can be tracked by earlier reported US unemployment rate data noted at 4.0% against 3.9% expected. Therefore, the market participants are eyeing the upcoming events such as FOMC members speech and FED chairman Powell speech due on February 07, 2019 to reckon the direction in which gold prices may move further.

Also, the market participants are eyeing the Sino-Us trade outcome and waiting for U.S president Trump’s speech to further gauge the movement in gold prices. Further Senior Chinese and U.S officials will start another round of talks in Beijing to avert the upcoming scenario on increase of US tariffs on goods imported from China, and failure of any positive outcome from this event will likely increase import duty from 10% to 25% on $200 billion worth of Chinese goods.

Given the interplay of many macro events, gold prices are expected to witness fluctuations in short to medium term. It will be true to say that some consolidation may be seen while gold might still be able to find support at levels much above the $1300 mark. Nonetheless, this will be subject to the strength in US dollar.

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