Gold Prices Trending Above $1,400: Will The Rally Sustain?
Zacks Investment Research | Jun 24, 2019 09:59PM ET
Gold prices is currently trending above $1,400 an ounce — at levels last seen in 2013, fueled by safe haven demand triggered by uncertainty over the U.S.-China standoff and geopolitical uncertainties. Further, a weaker greenback and slumping bond yields fueled gold prices. So far this year gold prices have gained 10.6%. The yellow metal had witnessed a drop of 2.1% in prices in 2018.
The dollar has slumped with the Federal Reserve signaling possible rate cuts of as much as half a percentage point later this year. The 10-year Treasury yieldhas also declined to 2% — the lowest level since 2016. Lower interest rates decrease the opportunity cost of holding non-yielding gold and weigh on the dollar, making gold cheaper for investors holding other currencies.
The prolonged trade war between the United States and China already has traders and investors on tenterhooks this year. Low expectations of a decisive breakthrough for talks between President Trump and Xi Jinping at the upcoming G20 Summit in Osaka, has also bolstered gold prices. The ongoing US-Iran tension also boosted safe haven demand for gold. Further, Trump announced new hard-hitting economic sanctions on Iraq in response to the shooting down of a U.S. Navy surveillance drone over the Strait of Hormuz.
Total non-farm payroll employment expanded by just 75,000 in May much lower than the consensus of 185,000. Further, per payroll processor ADP’s latest employment report, U.S private employers hired 27,000 people in May 2019 — marking the lowest growth in more than nine years. The figure fell way short of consensus forecast of job growth of 185,000. In April, private-sector employment increased by 275,000. This adds to concerns that the Federal Reserve will cut interest rates this year which is conducive to gold prices.
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