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Gold Looks Like 'Safe Money' Amid Rising Inflation Expectations

Release Date:  Friday, January 25, 2019

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Gold and Silver Prices

Gold closed above $1,300 an ounce on Friday which was its highest price since June 15th as the U.S. dollar dropped and geopolitical turmoil and global growth worries rose amongst investors.

"Gold jumped over 1 percent to a more than a seven-month high on Friday, briefly surpassing $1,300 as the dollar slid ahead of a U.S. Federal Reserve meeting next week where the central bank is widely expected to leave interest rates unchanged.

"'The major catalyst supporting gold is a big drop in the dollar, amid expectations the Fed will reiterate a pause to its hiking cycle next week,' said Fawad Razaqzada, an analyst with Forex.com.

"Gold tends to appreciate on expectations of lower interest rates, which reduce the opportunity cost of holding non-yielding bullion.

"The dollar fell off a three-week high reached in the previous session as investors focused on the Fed meeting next week. This made gold, which is traded in dollars, cheaper for holders of other currencies.

"'There are also some rumors that the Fed is backing off their quantitative tightening program, which would mean they are going dovish. This would in turn mean a probable end of rate hikes in 2019, which would be supportive for gold,' said Bob Haberkorn, senior market strategist at RJO Futures.

"Risks 'from economic and political perspectives, are keeping gold relatively well supported going forward,' said Commerzbank analyst Daniel Briesemann." ("Precious- Gold soars to over 7-month high as dollar falls before Fed meeting," Arijit Bose, Reuters, 01/25/19.)

Gold ended the week up $21.30, closing at $1,302.60. Silver ended the week up $0.37, closing at $15.68.

Gold Looks Like 'Safe Money' Amid Rising Inflation Expectations - Preiss

Gold appears to have reached its bottom and is ready to go up again with a renewed increased interest amid issues such as the government shutdown, escalating trade war and rising global debt levels.

"The back of the U.S. dollar says 'In God We Trust.' However, for an increasing number of investors in 2019 the motto increasingly is 'In Gold We Trust,' as the precious metal could turn into a new bull market this year.

"A renewed interest in gold is being driven by a confluence of factors that include the current political stand-off in Washington and the longest government shutdown in U.S. history combined with a late-stage economic cycle, rising global debt levels and an escalating U.S.-China trade war.

"Bullion prices are emerging from an 8-year bear market. Gold prices peaked at an all-time high of $1,921 an ounce, when the U.S. Federal Reserve was concluding its bond buying program, known as quantitive easing, or QE2, in September 2011. And by the end of 2015, the metal had declined to a low of $1,046 at around the same time as the Janet Yellen-led Fed increased its key interest rate, the Federal Funds Rate, for the first time in seven years.

"Conventional wisdom says that gold is the anti-dollar. That is, whenever the greenback is strong, gold is weak, and vice versa. Gold prices react inversely to U.S. dollar real yields. But Gold is not about inflation on its own, and it's not about interest rates on its own. But it's about the relationship between the two.

"Gold prices had been range bound for the last 3 years, but now signs are emerging that it may have reached a bottom and ready to climb again. The Fed is raising U.S. interest rates and scaling back asset purchases to normalize the central bank's balance sheet, while at the same time wage pressure and a tight labor market could lead to rising inflation expectations." ("Gold Looks Like 'Safe Money' Amid Rising Inflation Expectations," Rainer Michael Preiss, Forbes, 01/22/19.)

Gold To Push Above $1,300 As U.S. Dollar Peaks- Scotiabank - Christensen

Scotiabank sees a weaker dollar as the major factor for gold prices to go up followed by uncertainty in the markets. 

"A peak in the U.S. dollar and 'toxic U.S. debt' should continue to support gold prices... according to analysts at Scotiabank. In its 2019 forecast, the bank said that it sees gold prices averaging the year around $1,300 as prices are caught in a $150 range with the peak coming in at $1,350 an ounce.

"The firm said that a weaker U.S. dollar will be a major factor in gold's potential. The bank sees the U.S. Dollar Index averaging 89.4 points this year, down significantly from its current level around 96 points. 'Peak dollar is simply behind us,' the analysts said.

"'The U.S. twin deficit is a core reason for expected [U.S. dollar] weakness and the thinking that the Fed will be "handcuffed" from raising rates too high,' the analysts said in their report.

"'Overall, while the increasing 'short-termism' amongst investors has ensured it's been rather easy to look through the public debt issue largely in the U.S., history reminds us that the confluence of risky and unpredictable policies, excessive borrowing and higher interest rates pose a toxic threat. Gold is a real asset and currency hedge against unchecked and massive US and global debt growth,' the analysts added.

"The second factor to drive gold will be if uncertainty continues to sweep through financial markets. 'The biggest uncertainty investors face is U.S. monetary policy,' the analysts said.

"'Overall, gold can mildly rally in a quantitative tightening cycle if the Feds outlook creates enough uncertainty to global risk assets and/or if the Fed remains behind the inflation curve ensuring real rates remain close to zero,' the analysts said...

"Along with gold, Scotiabank is bullish on silver, outperforming the yellow metal in a weak U.S. dollar environment. The bank looks for silver to average the year around $17 an ounce." ("Gold To Push Above $1,300 As U.S. Dollar Peaks- Scotiabank," Neils Christensen, Kitco News, 01/22/19.)

Gold is entering a 'golden cross' and one technician sees an even bigger bounce ahead - Pei

According to one technician, if gold reaches $1,300 an ounce then $1,350 is also possible.

"Over the last few months, all that glitters has been gold.

"On Friday, gold went negative on the week, its first down week in five. However, the precious metal is up 10 percent since hitting 52-week low in August... flashing a secret buy sign: The 'golden cross.'

"The term refers to what happens when the 50-day moving average crosses above its 200-day moving average. Investors have typically view this as a bullish signal that points to more upside - and Cornerstone Macro technician Carter Worth believes the gold bulls might just be right.

Worth points out that a "wedge" has formed in the chart of gold over the past few years, and that's got the technician looking for a bounce ahead for the metal.

"The point is that there is a lot of tension and typically this setup is resolved in a dynamic way," he said Thursday on CNBC's "Futures Now," adding that "our bet is it's going to be resolved up."

"What's more, gold is outperforming the overall commodities market, leading Worth to say that the metal is seeing 'the prospect of an important breakout' - thanks to its strength.

"As for how high gold could run, Worth is looking to $1,300 as a 'critical juncture' for the metal. According to the technician, if gold manages to break through $1,300, a level it last hit in June, then a rally up to $1,350 is likely." ("Gold is entering a 'golden cross' and one technician sees an even bigger bounce ahead," Annie Pei, CNBC, 01/19/19.)

Gold steadies as stocks pullback risk sentiments - Reuters

Gold is once again sought out as a safe-haven investment and diversifier with weakness in equities, weaker dollar and potential recessions. 

"Gold prices steadied on Wednesday, clawing back from losses made earlier in the session, as a recovery in stock markets fizzled out on concerns over geopolitical and economic uncertainty, triggering investors to seek safety in the metal.

"'Gold's strength is due to the weakness in equities continuing. People are starting to run towards gold as a safe haven,' Michael Matousek, head trader at U.S. Global Investors, said.

"A respite to falling global equities earlier in the session proved only temporary, as a global index of stock markets turned negative when jitters over U.S. politics and the state of the world economy eclipsed a boost from Wall Street's quarterly earnings reports.

"Trade negotiations between the United States and China were also dealt a blow as Beijing vowed a response against Washington's decision to formally proceed with the extradition of Meng Wanzhou, Huawei's chief financial officer, currently detained in Canada.

"'Renewed safe-haven buying and portfolio diversification as investors seek protection from market turbulences, potential recessions, and growing bearish sentiment,' are supportive factors to gold's outlook, analysts at Societe Generale said in a note.

"Adding to gold's appeal was a falling dollar index, which touched a five-day low earlier in the session. The dollar, which rose amidst trade tensions between the United States and China, overtook gold as investors' favored hedge against uncertainties in 2018.

"The dollar, which rose amidst trade tensions between the United States and China, overtook gold as investors' favored hedge against uncertainties in 2018.

"However, analysts believe that the same is unlikely to happen this year, with a widely expected pause to the U.S. Federal Reserve's rate hikes weighing on the currency.

"Gold tends to gain on expectations of lower interest rates, which reduce the opportunity cost of holding non-yielding bullion.

"'Another rationale for the weaker dollar is that the U.S. national debt just keeps growing and gold appreciates alongside the U.S. debt,' Matousek said. Earlier this month, Fed Chairman Jerome Powell raised concerns about the size of the U.S. debt." ("Gold steadies as stocks pullback dents risk sentiment," Reuters, CNBC, 01/22/19, updated 01/23/19.)

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