Let us tell you what has influenced the sharp rise in gold prices.
On Tuesday 10th, the dollar weakened due to political tension. North Korea continued its provocative policy, and Catalonia threatened to declare independence unilaterally. Fears of investors are that Catalonia can become an example to follow by other EU countries.
Ludger Schuknecht, Chief Economist at the Germany’s Federal Minister of Finance Wolfgang Schäubl, commented the background for the instabilitye:
“Search for yield by investors around the world, risk of fiscal dominance looming for central banks, misallocation in the real economy all put our common goal of strong, sustainable, balanced and inclusive growth at risk.”
Gold raised in price reaching $1,288.
On Wednesday 11th, gold positions strengthened.
The situation in the stock market was commented by Richard Thaler, Professor of the University of Chicago and Nobel Prize winner in Economics. In his opinion, "we seem to be living in the riskiest moment of our lives, and yet the stock market seems to be napping”. Thaler noted that the nervousness of investors raises concerns.
Not only investors, but also political leaders gave way to worrying. The US president had a fight with Senator Bob Corker who said that Donald Trump's actions could lead the country to World War III.
The president commented on the Republican senator's attack as follows:
“If you look over the last 25 years through numerous administrations, we were on a path to a very big problem -- a problem like this world has never seen. We're on the right path right now, believe me.”
One ounce of gold was worth $1,291 on Wednesday. The rise in gold prices determined a dollar’s decline after the release of data on the September Fed’s meeting. The publication of the protocols indicates a possible increase in the interest rates this year. Market participants were in anticipation of the US inflation data to be revealed on Friday.
On Thursday 12th, Dutch ING analysts forecast further improvement of euro quotes. The strengthening of the European currency was affected by the freezing of Catalonia's exit from Spain. The Catalan authorities have only 5 days until October 16th to make a decision. The head of Catalonia Carles Puigdemonr has a choice of either cancelling the declaration of independence or correcting the situation.
Spanish Prime Minister Mariano Rajoy announced the deadlines for the Catalan government to "clarify whether or not it has declared independence".
The policy of freezing the actions of Catalonia affects the growth of the precious metal, which stopped at $1,293 on Thursday.
On Friday 13th, the dollar kept declining. The drop in the US currency was influenced by inflation data which did not justify specialists’ forecasts. Jim Wyckoff, analytic at kitco.com noted that “stock market traders and investors are focusing on upbeat world economic growth prospects as a bullish tonic. However, they are paying little attention to geopolitics. If the stock market community does begin to pay more attention to geopolitics (which will likely be the case) then look for increased money flows out of equities and into hard assets like gold and other raw commodities.”
Leading experts more and more often talk about the need to raise the rates.
San Francisco Fed President John Williams:
“Based on my outlook for employment and inflation, I view a gradual pace of increases over the next two years, bringing the federal funds rate to its new normal of 2.5 percent, to be appropriate.”
The price of gold at the end of the week advanced to $1,303.
On Monday 16th, another session of tension was aroused by North Korea whose military officials announced their readiness to launch new missiles. The international situation worsened due to the US President’s actions. Trump violated international agreements with Iran:
“I am directing my administration to work closely with Congress and our allies to address the deal's many serious flaws so that the Iranian regime can never threaten the world with nuclear weapons.”
The heated atmosphere contributes to the growth of discontent towards the American president. Many have started talking about the 25th amendment to the Constitution, according to which Trump can be impeached.
This ambiguous situation contributes to the gold prices’ increment. On Monday, an ounce of the yellow metal was equal to $1,302.
John Hardy, Head of FX Strategy at Saxo Bank headquartered in Copenhagen identified three reasons why the dollar will weaken further:
1. The growing role of China in the world trade.
2. The North Korean threatening policy.
3. Reducing the influence of the NATO.
According to Mr Hardy, the US currency will soon "lose the status of the world reserve currency."
The decline in the dollar’s value always leads to an increase in the price of gold.
In the middle of autumn, demand for gold in South Asia traditionally increases. India is getting ready for Diwali or Depavali, the Hindu festival of lights, on October 19th, which is forecasted to increase the gold imports to 70 tons.
We keep an eye on the market activity.
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