Tarnished gold may come to shine
Gold has underperformed other asset classes this year, but recent developments may point to a developing bottom. Is it time to start building a position?
Head of Commodity Strategy
Gold traded higher for the first week in seven as the dollar weakened and after President Trump said that he was “not thrilled” with the Fed continuing to raise rates.
Under the chairmanship of Trump appointee Jerome Powell, the US Fed Funds rate has been raised three times on top of the two hikes during the earlier part of Trump's presidency.
The market responded by sending the dollar lower with the euro breaking back above €1.15 and thereby returning to a potential €1.15 to €1.17 range. This helped remove some of the euro weakness that emerged the previous week in response to Italian budget risks and EU banks’ exposure to EM debt, and most notably Turkish debt.
For the dollar and short term rates, it’s not a question of what President Trump says but more what the U.S. Fed does. While gold may show continued signs of stabilising, a rally very much depends on whether funds holding a record short begin to take cover. For that to happen, gold needs at a minimum to break above a band of resistance between $1,200 and $1,210/oz.