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Gold at 6-1/2 month peak as weak data underpins growth fears

Release Date:  Friday, January 4, 2019

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Gold and Silver Prices

Gold remained on track for a third straight weekly gain despite closing lower on Friday following a stronger-than-expected U.S. jobs data and a stronger U.S. dollar.

"The U.S. garnered a better-than-expected 312,000 new jobs in December to bring total employment gains in 2018 to a three-year high of 2.64 million, with unemployment rising to 3.9% as labor participation rose...

"The employment report may solidify the view that the economy is healthy but may also raise the question of how the data influences the Federal Reserve's rate-hike strategy in the coming months. Higher rates can dull appetite for gold but the threat of rate increases also have roiled risk assets like stocks.

"Michael Armbruster, managing partner at Altavest, said he believes that the Fed will end up leaving interest rates unchanged in 2019. 'Barring a spike in inflation, if rates are left unchanged in 2019, it is likely that we have seen the last rate hike until after the 2020 presidential election,' he said.

"'A one day setback for gold does not change the bullish technical outlook. In fact, we would view a further pullback in gold as a buying opportunity,' he added.

"Despite the pitch lower for gold, some strategists that the metal's early response would hold over the long-term and still view gold as maintaining a bullish tone amid uncertainty about central bank policy that has fostered volatility in the broader market.

"'The jobs number obviously is strong but...I really don't think there's that much of a connection with it and gold and would suggest that gold will get through this knee-jerk reaction and resume its trend upwards,' said Trey Reik, senior portfolio manager at Sprott Asset Management.

"He said gold is 'clearly breaking out from a multiyear downtrend.'" ("Gold marks biggest one-day decline in 2 weeks after strong jobs report," Myra P. Saefong and Mark Decambre, Market Watch, 01/04/19.)

Gold ended the week up $4.00, closing at $1,280.30. Silver ended the week up $0.31, closing at $15.66.

Gold at 6-1/2 month peak as weak data underpins growth fears - Reuters

Global economic slowdown and expectations that a three-year rate-hiking cycle in the U.S. is ending are beneficial for gold and increase its appeal.

"Gold rose to its highest level in over six months on Wednesday as weak factory activity data in Europe and Asia compounded concerns of a global economic slowdown and weighed on stock markets, increasing the precious metal's appeal.

"'A sell-off in the stock markets today is prompting some safe-haven demand,' said Jim Wyckoff, senior analyst at Kitco Metals.

"'Gold prices hit a six-month high and the trend is up on a near-term basis which is inviting technical-based buying interest. Probably some new speculative fund money coming into the market combined to push gold prices higher despite the stronger dollar.'

"The dollar index rose against the euro and sterling on Wednesday.

"World shares started the year on a gloomy note with poor data across Asia, the euro zone and the United States that prompted investor flows into safe haven assets, such as the yen, Treasuries and bullion.

"Euro zone manufacturing activity barely expanded at the end of 2018 in a broad-based slowdown, while China's factory activity also contracted for the first time in 19 months in December.

"Gold priced in euros jumped to 1,134.08 euros an ounce, its highest level since mid-June 2017. In sterling terms, gold climbed to its highest level since early September 2017, at 1,022.80 pounds an ounce.

"'There is some fading optimism for the euro zone area which is giving gold quite a good lift. It is a continuing trend of what we've seen in the latter part of last year,' said Ross Norman, chief executive officer of Sharps Pixley.

"Spot gold prices gained about 5 percent last month, the most since January 2017. Some investors expect the precious metal to pass the $1,300 psychological resistance level in the near-term.

"Markets are now awaiting views from Federal Reserve Chairman Jerome Powell on the U.S. economic outlook and hints about interest rates in 2019 when he participates in a joint discussion on Friday with former Fed heads Janet Yellen and Ben Bernanke.

"There are expectations that a three-year rate-hiking cycle in the United States has come to a close, which would be beneficial for non-yielding bullion.

"Further pointers are expected this week from a closely watched survey on U.S. manufacturing, due on Thursday, followed by the December payrolls report on Friday." ("Gold at 6-1/2 month peak as weak data underpins growth fears," Reuters, 01/02/19.)

Gold 'To Take The Bull Baton' From The U.S. Dollar In 2019- Bloomberg Intelligence - Golubova

A weaker U.S. dollar, additional volatility in the markets and a less aggressive Federal Reserve are all supporting factors for positive gold performance.

"After battling some severe headwinds, including a strong U.S. dollar for most of 2018, gold is looking 'to take the bull baton from the U.S. dollar and stock market' in the new year, said Bloomberg Intelligence (BI) in its January Commodity Outlook.

"Gold prices kicked off 2019 on a positive note, with gold trading near six-month highs during the first trading session of the year, supported by 'wobbly stock markets and chart-based buying,' according to Kitco's senior technical analyst Jim Wyckoff. February Comex gold futures were last trading at $1,282.40, up 0.09% on the day, after reaching a daily high of $1,290.20 earlier in the session.

"This positive gold trend should continue as the year progresses, wrote BI's senior commodity strategist Mike McGlone. Some supporting factors for commodities this year include a weaker greenback, more volatility in the stock market, and a less aggressive Federal Reserve.

"'It should play out positively for commodities, with elevated mean-reversion risks in the trade-weighted broad dollar at the highest end-of-year level ever, an extended stock-market bull showing exhaustion and subsiding Federal Reserve tightening. Metals, notably gold and copper, should be primary beneficiaries of a peak greenback,' McGlone said.

"It looks like the U.S. dollar has run 'too hot' and its strength is unlikely to last, Bloomberg Intelligence pointed out.

"'On an end-of-year basis, the trade-weighted broad dollar has never been higher. Sustaining that strength should require continued U.S. stock-market outperformance vs. global equities, and more rate hikes,' McGlone said. 'These dollar-bullish drivers are near exhaustion vs. commodities.'

"'The gold-to-stocks ratio is potentially bottoming from a good support level despite a resilient greenback. A declining U.S. equity market is a primary force to pressure the dollar, supporting metals,' the outlook explained.

"On top of that, gold's extremely compressed range could spark a big rally once the yellow metal begins its move higher, noted Bloomberg.

"'Technicals are explosive for the metal, which trades in its narrowest 36-month range in almost two decades,' McGlone said. 'The three-year market picture for gold indicates prices migrating higher within an increasingly compressed range, which typically portends a breakout.'" ("Gold 'To Take The Bull Baton' From the U.S. Dollar in 2019- Bloomberg Intelligence, Anna Golubova, Kitco News, 01/02/19.)

Expect Good Things For Gold In Early 2019- Droke

Gold now has less competition from other assets and its currency component is improving which are all favorable for its performance in 2019.

"After experiencing some serious turbulence in 2018, gold has since bottomed and launched a meaningful turnaround in the final months of the year. In today's report we'll look at reasons investors should expect a continued revival of the metal's fortunes in the first few months of the New Year.

"While gold experienced a down year for 2018 - its first annual decline in three years - it finished the old year on a bullish note. The gold price was down nearly 2% for 2018, but has gained more than 6% since bottoming in August. This solid year-end performance is all the more remarkable when you compare the yellow metal's recent gains with the under-performing U.S. stock market...

"For much of 2018, gold was in a position of declining strength compared with equities. This relative weakness argued against owning gold in favor of stocks. But now that gold's relative strength position has drastically improved, fund managers and market-moving institutional investors have a major incentive to favor owning gold over stocks. As long as gold's relative price strength vs. the SPX remains in a rising trend above its 15-day moving average, participants should continue to lean bullish on the metal.

"Yet another argument in gold's favor as we enter 2019 is the continued erosion of U.S. government bond yields. For much of 2018, rising bond yields argued against owning non-interest bearing gold. But with the sharp reversal of the rising yield trend starting in October, gold suddenly had less competition in the fight for investors' attention...

"One of the strongest obstacles that faced gold last year was the almost continual strength of the U.S. dollar. Gold's currency component is essential for determining its directional movements, so a strong dollar index created a powerful headwind for the metal and kept the gold bulls on the defensive for much of 2018. But now that the dollar is showing its first signs of sustained weakness in several months, gold's currency component is improving.

"Meanwhile on the sentiment front, investors have apparently thrown in the towel on gold and silver based on sales data released by the U.S. Mint. According to the Mint, sales of American Eagle gold and silver coins fell to their lowest levels in 11 years during 2018. This underscores the widespread lack of interest in both metals in the wake of the 2018 gold market plunge. From a contrarian's perspective, this is an encouraging sign in that it implies the last holdouts among the long-term gold bulls have been washed out of the market. This has historically been a necessary prerequisite to a renewed bull market getting underway. The latest gold coin sales data is thus another in a growing list of signs that point to gold's recent rebound having longer-term staying potential.

"In light of the above-mentioned factors, investors should expect good things ahead for gold in the early part of 2019. Gold's currency component is finally improving, and the metal has diminishing competition from other financial assets..." ("Expect Good Things For Gold In Early 2019," Clif Droke, Seeking Alpha, 01/02/19.)

Gold Poised for weekly Gain as Global Jitters Boost Haven Demand - Rowling

Political and economic uncertainty from 2018 is expected to continue and deepen this year and gold can likely have a solid performance in 2019. 

"Gold is headed for a third weekly gain after turbulent equity markets sent investors hunting for haven assets amid global growth concerns.

"Futures breached $1,300 an ounce in New York and spot gold flirted with the level in early London trading, before dropping back as stocks in Europe and Asia recovered some of their losses ahead of fresh trade negotiations between the U.S. and China next week.

"Although a breakthrough in trade talks could impede further gains for gold, sentiment among traders and analysts remained bullish for an eighth week in a Bloomberg survey. With equities faltering, global holdings of gold-backed exchange-traded funds added 67 tons last month and have risen every day since the start of the new year.

"'2019 is already getting off to a volatile start and we expect to see the political and economic uncertainty of 2018 continue and deepen,' said Mark O'Byrne, research director at GoldCore Ltd. 'We believe risk assets will underperform, while gold outperforms in 2019.'

"In addition to roiling equity markets and global economic growth worries, gold has benefited as investors factor in fewer, if any, Federal Reserve interest rate hikes this year. The partial U.S. government shutdown has also spurred a risk-off mood.

"Among data due for release on Friday are U.S. payrolls figures for December, while Fed Chairman Jerome Powell is due to speak at an event in Atlanta. Investors will be watching his remarks for his assessment of recent weakness, and the path for monetary policy this year.

"'The dollar is showing some signs of weakness especially against the yen, stocks are under pressure, yields are coming down, Fed rate expectations have been coming down as well,' said Ole Hansen, head of commodity strategy at Saxo Bank A/S. 'If that trend continues, then gold will continue to assert its role as a safe haven.'" ("Gold Poised for Weekly Gain as Global Jitters Boost Haven Demand," Rupert Rowling, Bloomberg, 01/03/19.)

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