· Gold prices retreated from a six-year high on Tuesday after comments from U.S. Federal Reserve officials trimmed expectations that the central bank will lower interest rates by half a percentage point next month.
· Federal Reserve Chairman Jerome Powell said the U.S. central bank is “insulated from short-term political pressures,” as policymakers wrestle with whether to cut rates.
· The comments came after St. Louis Federal Reserve Bank President James Bullard said he does not think the U.S. central bank needs to cut interest rates by a half-percentage point at its next meeting in July.
· Spot gold was up 0.3% at $1,423.26 per ounce as of 2:36 p.m. EDT (1836 GMT). Prices had touched a high of $1,438.63 in the session, a level last seen in May 2013, and were set for a sixth straight sessions of gains.
U.S. gold futures were little changed on settlement at $1,418.7.
· “The whole gold move (higher) was on the back of the Fed’s signal to cut rates by 50 basis points in the last FOMC (Federal Open Market Committee) meeting,” said Bob Haberkorn, senior market strategist at RJO Futures.
“Now, Bullard and Powell’s comments are going against that and Trump’s wishes. It is probable that gold might continue paring gains to until the G20 meeting.”
· The comments lifted the dollar and pressured gold, prompting bullion to turn negative briefly, after it had rallied more than 1% earlier in the session on the back of expectations of monetary easing by the Fed and a subdued dollar.
Lower interest rates reduce the opportunity cost of holding non-yielding bullion, and gold had gained nearly $100 in value since the Fed’s statement last week that hinted at monetary easing.
· Meanwhile, tensions between Iran and the United States lifted demand for safe-haven gold. Investors also watched for further cues on trade negotiations between Washington and China at the G20 summit.
· “People have been buying what they feel could be an additional haven on more upcoming volatility caused by global economic pullback, the tinder box of the Middle East with Iran, and the G20, which may not bring the (trade) deal with China that everybody is expecting,” said George Gero, managing director at RBC Wealth Management.
· Investors are piling into gold, sending the precious metal to a six-year high on Tuesday, and analysts think the commodity has established a “base” to go even higher.
Gold futures hit a high of $1,442.9 on Tuesday, its highest level since May 2013 when it reached $1,444.9. Gold settled slightly higher $1,418.70.
The precious metal is up more than 9% this month, on pace for its best monthly performance since February 2016 when gold gained 10.57%.
· “Bigger picture though, given the magnitude of the base, which has taken six years to form, we suspect we could even see a retest of the $1,921 record high,” David Sneddon, global head of technical analysis at Credit Suisse, said in a note to clients Monday.
· The Fed’s easier policy has also weakened the dollar. Again a basket of currencies, the dollar hit its lowest level since March on Monday.
“We have finally seen more conclusive signs of the USD starting to materially weaken,” said Sneddon. “With the DXY removing pivotal support from its 200-day average to complete an important bearish ‘wedge’ reversal, which should provide a fresh and significant catalyst for Gold to extend its gains.”
· Morgan Stanley’s commodity strategist Susan Bates said gold is the firm’s No. 1 commodity pick.
“Morgan Stanley’s forecasts of falling real rates and a bearish US dollar outlook, against an uncertain macroeconomic outlook, should lend significant upside to gold’s price through 2H19 and into 1H20,” Bates said in a note Monday.
· Gold prices also reacted positively after President Donald Trump signed new sanctions on Iran on Monday, days after Iran shot down a U.S. drone, increasing geopolitical uncertainty.
Gold is up more than 10% for the quarter and is on track for its biggest quarterly gain since the first-quarter of 2016, when it rose 16.54%.
· Indicating investor interest in gold, holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose 0.37% on Monday, after posting their biggest percentage gain in nearly 11 years on Friday.
· Among other precious metals, platinum declined 0.71% to $804.25 per ounce, while silver dipped 0.5% to $15.36. Palladium slipped 0.5% to $1,527.01 after hitting its highest level since March 26 at $1,551, earlier in the session.
Reference: CNBC, Reuters
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