Better than expected US data pushed up the dollar from a 15 month low on Friday. Gold fell 1% due to a potential FED rate rise. What does this mean? RAKBANK explain
Firstly Bullion is highly sensitive to rising rates because they push up bond yields, increasing the opportunity cost of holding nonyielding gold. so when the US announced improved jobs data on Friday it boosted the beleaguered dollar and potentially cleared the way for the U.S. Federal Reserve to raise interest rates for a third time this year. U.S. employers hired more workers than expected in July and raised their hourly earnings by the most in five months, signs of labour market tightness and offering the Fed some assurance that inflation will gradually rise to its 2% target. The U.S. dollar .DXY, which was wallowing near 15-month lows prior to the figures, rallied after the release, making dollar-priced gold costlier for non-U.S investors. “The strong rise in non-farm payrolls together with the drop back in the unemployment rate to a joint 16-year low suggests the Fed will still need to raise rates again later this year, even if inflation remains subdued,” said Simona Gambarini, commodities economist at Capital Economics, on Reuters. “In the absence of substantial geopolitical risks, we think that Fed tightening will prove too strong a headwind for gold prices this year. We expect the gold price to end the year at $1,150 per ounce.”
More evidence that the U.S. economy is on a sustainable path of growth is needed to for the dollar to make a more meaningful comeback, said Fawad Razaqzada, technical analyst for Forex.com.
Gold initially extended its recent gains to reach a six-week high of $1273 on Tuesday as the yellow metal benefited from further weakness in the .DXY and the on-going turmoil in the White House. However much stronger than expected US employment data published on Friday helped to reverse sentiment in the USD, prompting long liquidation in gold with the price falling to a low of $1254.25 before ending with a pared loss of $10.50 or 0.83% at $1258.00 bid. Looking forward to next week we can expect technical traders to probe the 100 day moving average set at $1252 with a break potentially targeting the next main area of support pegged at $1242. However with the Trump Presidency likely to continue lurching from one problem to the next and the USD vulnerable to further declines over the summer, any short term technical weakness in gold is seen as a longer term buying opportunity with the price likely to make another attempt to break above key long term resistance set at $1295 before the end of the year.
Silver, as ever, tracked movements in the gold price with the industrial precious metal posting its high for the week of $16.89 on Tuesday before collapsing by 4% to a low of $16.19 on Friday after the US jobs data and ending a disappointing week down 43 cents or 2.58% at $16.23 bid. We are likely to see further pressure on the downside in the week ahead with support set at $16 the initial target and potential reach $15.60 if this key technical and psychological support level is broken. However, as with gold, we see short-term technical weakness as a longer-term investment opportunity with $18 a likely target before year-end.
Platinum finally stage a significant break out of the $890 – $950 trading range that has strangled the market over the summer with the noble metal reaching a high of $970 on Friday after strong economic data from China before ending a positive week up $30 or 3.23% at $959.00 bid. If this break to the upside is confirmed next week chart watchers will have their sights on a return to $1,000 before the end of 2017.
Palladium initially built on the previous week’s 4% advance to reach a high of $906 by Wednesday, however the junior precious metal gradually gave up all of its gains to end on the lows and unchanged on the week at $877.00 bid. Further weakness back towards support pegged at $860 is likely next week, however palladium remains the standout performer in the sector in 2017 and the focus in August is likely to be on the upside with this year’s high of $914 the target for chart watchers.