Gold hits six-month high on U.S. political worries

Release Date:  Friday, December 28, 2018

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Gold and Silver Prices

Gold closed to a more than six-month high on Friday following a weaker dollar, concerns over slowing economic growth and the partial government shutdown created demand for the safe-haven asset.

"'A weaker U.S. dollar is fueling higher gold prices and the volatility in the stock markets is worrying people about the prospects in 2019, which is also moving people to gold,' said Walter Pehowich, executive vice president of investment services at Dillon Gage Metals.

"The dollar index, a gauge of its value against six major peers, fell 0.06 percent, adding to gold's appeal by making it cheaper for holders of other currencies.

"Financial markets are expecting U.S. growth to slow next year due to rising interest rates. A measure of U.S. consumer confidence posted its sharpest decline in more than three years in December, emphasising the possibility.

"'A darkening outlook for global economic growth, a simmering trade war between the United States and China, as well as Brexit-linked uncertainty may trigger renewed risk aversion and help lift gold prices in 2019, said Ilya Spivak, a currency strategist at DailyFx.

"Gold is often used by investors as a hedge against political and financial uncertainty.

"'As long as the U.S. government continues to remain shut, it may invoke some safe-haven bids and help gold to touch new highs,' said Afshin Nabavi, senior vice president at MKS SA." ("Gold holds near 6-month high on softer dollar, tumultuous stocks," Reuters, CNBC, 12/26/18, updated 12/28/18.)

Gold ended the week up $24.70, closing at $1,280.30. Silver ended the week up $0.75, closing at $15.35.

Gold hits six-month high on U.S. political worries - Narayanan

Gold prices may continue going up as investors are drawn to the safe-haven metal amid geopolitical uncertainty.

"Gold rose to its highest in six months on Wednesday as worries over U.S. political uncertainty, aggravated by a partial government shutdown, and slowing global economic growth drove investors towards the safe-haven metal.

"Spot gold climbed 0.3 percent to $1,272 per ounce as at 1212 GMT. It touched $1,274.68 in early trade, its highest since June 20...

"'There is some safe haven buying at this point in time because of the partial (U.S. government) shutdown. The dollar against the Japanese yen and Swiss franc has lost quite a bit of value,' said Afshin Nabavi, Senior Vice President, MKS SA.

"Investors were unnerved by the partial U.S. federal government shutdown and President Donald Trump's hostile stance towards the Federal Reserve chairman.

"The U.S. Senate has been unable to break a deadlock over Trump's demand for more funds for a wall on the border with Mexico, and a senior official said the shutdown could continue until Jan. 3.

"With geopolitical uncertainty, investor interest in gold could push prices up to as much as $1,280-$1,300 in the coming year, Nabavi said.

"Spot gold is up about 4.1 percent for the month thus far, putting it on track to register its best December in about 10 years.

"Interest in gold, which is seen as a hedge against political and economic worries, has reflected in holdings of SPDR Gold, the largest gold exchange-traded fund. SPDR holdings are at their highest point since August and have risen about 6 percent since touching more than 2-1/2-year lows in October.

"Gold prices are testing the key resistance at $1,274.60, and breaching this level will push the price towards $1,286.70 on the near term basis, Mumbai-based Kedia Commodities said in a research note." ("Gold hits six-month high on U.S. political worries," K. Sathya Narayanan, Reuters, 12/26/18.)

Gold rises as sliding stocks boost safe-haven demand - Reuters

With many uncertainties going into 2019 investors are preparing themselves by buying gold.

"Gold prices rose on Thursday, helped by a weaker dollar and as a relief recovery in stock markets fizzled out, driving investors toward the safe-haven metal.

"Spot gold was 0.6 percent higher at $1,274.50 per ounce at 12:30 p.m. EST, after hitting at $1,279.06 in the previous session, its highest since June 19.

"'The weaker dollar index is supporting the buying interest in gold and the U.S. stock indexes have pulled back significantly, which has also helped,' Jim Wyckoff, senior analyst at Kitco Metals.

"'Also, the technical pasture of the gold market has become significantly bullish on a near-term basis, which is inviting some chart-based buying too.'

"A global equity rally fueled by a dramatic surge on Wall Street ran out of steam on Thursday, after a fall in Chinese industrial profits again showed the pressures on the global economy. U.S. stocks fell sharply at open on Thursday.

"'The recovery rally in stocks has not lasted long and the bearish sentiment is dominating again, which is supportive for gold,' a Germany-based analyst said.

"The dollar index, a gauge of the greenback's value against six major peers, fell 0.5 percent on Thursday, a sign that gold is cheaper for holders of other currencies.

"A partial U.S. government shutdown was widely expected to continue after Congress reconvenes on Jan. 3, with lawmakers split over President Donald Trump's demand for $5 billion in taxpayer funding for a Mexican border wall.

"Investor confidence in bullion was reflected in a surge in the holdings of SPDR Gold, the largest exchange traded fund. SPDR holdings rose 2.1 percent on Wednesday, the best one-day percentage gain since July 2016.

"'There has been an extensive surge in the gold exchange traded fund holdings and there is absolutely no shortage of momentum there. Investors are just preparing themselves by buying gold as there are several uncertainties heading into 2019,' said Naeem Aslam, chief market analyst at Think Markets UK." ("Gold rises as sliding stocks boost safe-haven demand," Reuters, CNBC, 12/27/18.)

Gold Is An Attractive Diversifier For Investors and Central Banks in 2019- WGC - Christensen

Economic and geopolitical uncertainty combined with central banks buying will likely continue to drive gold higher

"Geopolitical uncertainty won't do much for gold prices heading into 2019; however, pare that with growing economic weakness and precious metal stands out as a clear safe-haven asset, according to the World Gold Council.

"In an interview with Kitco News, John Reade, chief market strategist at the WGC said that he sees a potential for the gold market as investors will have fewer defensive assets to choose from in 2019 when economic and geopolitical uncertainty are expected to create financial market volatility. He explained that through most of 2018 investors found safety in the U.S. dollar and equity markets; however, financial market conditions are starting to look a lot different heading into 2019, he said.

"'What initially looked like a short-term correction, equities now look to be entrenched in a downtrend,' he said. 'When you look at the growing economic risks out there, gold starts to look pretty exciting. As a high quality, liquid asset, with the potential to deliver strong returns, and as an effective diversifier that works particularly well when other assets fall sharply, gold has historically proven to enhance the long-term performance of investment portfolios,' Reade said in a 2019 outlook report.

"Equity markets are flirting bear market conditions and investors have fewer safe-haven options, ahead of the new year. espite Wednesday's record move, where the Dow Jones Industrial Average rallied more than 1,000 points during the session, equities are still significantly down since seeing recording highs just a few months ago. The Dow Jones is down nearly 17% since its October record highs. Meanwhile, the S&P 500 is down almost 18% from its highs from September.

"'In 2018, you could hold your nose and buy U.S. equity markets because they were performing very well. That worked well for many investors until October, but the environment has changed and now gold looks a lot more attractive,' he said. 'If the economic slowdown is rapid or if risk assets fall sharply, investment flows into gold could match those seen during the 2008-2009 financial crisis.'

"However, it's not just retail investor diversification that will drive gold prices next year. Reade said that outside of investors demand, the most significant factor to drive gold in 2019 will be continued central bank buying. This past year central banks bought gold at the fastest pace in nearly three years...

"Reserve asset managers at central banks recognize that they have a very high proportion of their foreign reserves is held in U.S. dollars," he said. "If you are looking for an alternative to the U.S. dollar then I think gold looks more attractive than it did 10 or 15 years ago. If you look at alternative reserve currencies, there are issues with all of them."

Reade said that the conversations the WGC has had with global central banks, he expects to see gold reserve continue to grow through 2019.

"We constantly talk to central banks about gold and we have gotten a much better reception this past year than we have in the last two or three years," he said." ("Gold Is An Attractive Diversifier For Investors and Central Banks In 2019- WGC," Neils Christensen, Kitco News, 12/27/18.)

With Turmoil Rampant, Gold Targets $1,300 as Gloomy 2019 Beckons - Chia

Gold remains optimistic as demand for the safe haven asset grows amid continued volatility in the markets and the government shutdown.

"Gold is closing out 2018 with a flourish. Prices are poised for the biggest monthly gain in almost two years as concerns about next year's economic outlook, volatility in global equities and a government shutdown in the U.S. spur demand for the metal as a haven.

"Spot bullion hit a six-month high on Friday, topping $1,280 an ounce, as investors favored defensive assets, adding to holdings in exchange-traded funds over the month. Silver rose to the highest since August as it approaches its 200-day moving average, which could trigger further technical buying.

"Gold is powering into the year's end as global equities sink in the fourth quarter. Banks including Goldman Sachs Group Inc. have flagged the potential for gains over 12 months as the Federal Reserve steps back on the pace of U.S. rate increases. As the final week of the year closes, there was a slew of downbeat economic data and outlooks from the U.S., China, Japan and Europe.

"'We are very optimistic on gold,' said Benjamin Lu, an analyst at Phillip Futures Ltd. 'There's still a lot of uncertainty and gloom toward 2019.' Macro concerns, the U.K's Brexit process, and high levels of borrowing are among risks that will aid bullion in the first quarter, according to Lu.

"Spot gold advanced as much as 0.5 percent to $1,282.23 an ounce, the highest price since June, and traded at $1,277.65 at 8:25 a.m. in New York, according to Bloomberg generic pricing. It's up 4.7 percent in December, on pace for biggest monthly rally since January 2017." ("With Turmoil Rampant, Gold Targets $1,300 as Gloomy 2019 Beckons," Krystal Chia, Bloomberg, 12/27/18, updated, 12/28/18.)

Gold Can Keep Glittering in 2019 - Levisohn

With uncertainty in currency markets and a weak dollar gold is looking positive.

"Gold is finally glittering-and don't be surprised if it continues to shine.

"Gold, remember, is supposed to be a store of value, and has done a good job of keeping up with inflation over the long term. As Andrew Bary noted in our September cover story on the precious metal, an ounce of gold would have bought a good men's suit in 1918, and still does today.

"Gold can also act as a buffer in tough times. While the S&P 500 has tumbled 16% during the past three months, gold has gained 8%, acting as just the kind of hedge against market chaos that some investors hope for when they buy it.

"That role as insurance from market volatility was also apparent in currency markets. In 2018, gold has outperformed every Group of 10 currency except the yen, the U.S. dollar, and the Swiss franc, observes Société Générale currency strategist Kit Juckes. 'Fair to say, then, that it's mixing it with the safer-haven crowd.' he writes.

"Given the continued uncertainty in currency markets, there is a good chance that gold prices keep rallying. The dollar doesn't look great due to a slower U.S. economy and the large fiscal deficit that its government is running. The euro, meanwhile looks cheap relative to the dollar, but the main argument for the common-currency strength is that the news out of Europe can't get much worse. That is not a great reason.

"'The reason for thinking positively about gold at the moment is that we have deteriorating dollar fundamentals and an absence of reasons to like pretty much any other currency," Juckes writes.

"Gold it is, then." ("Gold Can Keep Glittering in 2019," Ben Levisohn, Barron's, 12/28/18.)

Equity Market Weakness To Make Gold Shine In 2019- Citi - Christensen

Citi analysts are bullish on gold due to economic uncertainty and even more bullish on silver due to its industrial elements.

"...analysts at Citi said they like buying gold on any dips as financial and geopolitical risks keep a bid in safe-haven assets in 2019.

"'We are moderately bullish on gold over the medium term. The rising frequency of US equity market drawdowns, the gradual unwind of QE, higher overall macro market volatility, and elevated geopolitical risks should all continue to favor gold buying on the dips,' the analysts said. 

"In its base case scenario, the bank sees gold prices pushing to a high of $1,300 an ounce next year with prices averaging the year at $1,265 an ounce. However the bank also sees a 30% chance that gold prices push to $1,400 an ounce by the third quarter of next year and averaging the year at $1,365 an ounce

"'A $1,300-1,400/oz push seems sustainable if US and global equities enter a bear market or there is a substantial boost in EM sentiment and unanticipated US$ weakness on the back of a material U.S.-China trade deal in 1Q'19,' the analysts said.

"According to the bank's latest research, economic uncertainty could be the biggest factor to drive gold prices higher next year. The analysts noted that on average gold prices have risen 7% when the S&P 500 has dropped more than 12%.

"Currently, gold prices are trading at their highest level in June as equity markets flirt in bear-market territory; the S&P 500 is down almost 15% from its record highs seen in September...

"As positive as Citi analysts are on gold, they are slightly more bullish on silver. The bank sees silver prices averaging 2019 around $15.70 an ounce, hitting a high of 16$. However, the bank also sees the chance for silver to push to $17 an ounce by the second half of the year.

"'The gold-to-silver ratio is extreme and silver's industrial elements could be more leveraged to global growth upside following further anticipated China easing and trade war de-escalation over the next 3-6 months,' the analysts said." ("Equity Market Weakness To Make Gold Shine In 2019- Citi," Neils Christensen, Kitco News, 12/28/18.)