Gold Prices Rally "Loses Steam" as Global Equities Rebound and Dollar Strengthens amid "Possibilities" of Rate Hikes

GOLD PRICES remained range-bound between $1336-1340 on Friday morning in London and is set to be higher on the week, in what some commentators called a “Rally Losing Steam” as global equities rose. The US Dollar remained solid amid strong expectations of a Fed’s rate hike later this year. After the release of worse-than-expected US retail sales data published 1.30pm London time, the Gold Price rose to $1,354.

US major indices closed together at record highs Thursday, a first since 1999 according to Bloomberg. Asian equities closed higher and European stock markets, bar the German index DAX, all rose on Friday morning.

German growth was not as slow as expected in the second quarter according to a report from the Federal Statistics Office.

The Euro slightly rose versus the Dollar to $1.1152, a July high, although the €/$ cross already reached a 6-weeks high at $1.1220 in August.

Comments by San Francisco Fed President John Williams on a real possibility of a US interest rate hike after this year’s US election supported the strength of the greenback.

“Gold should hold steady above $1300,” a China-based trader told Reuters, warning that “there could be a knee-jerk reaction on a rate hike.”

Brent crude oil rebounded and was set for weekly gains as silver and platinum prices eased back, as did copper prices.

Silver broke through the $20 level down to $19.89 early morning but was still up on the week, a level first reached early July in the aftermath of the Brexit referendum. Silver in GBP and EUR was also higher on the week Friday morning.

While US Dollar gold prices were range-bound hovering around 2% under July multi-years highs, gold in Pounds Sterling and Japanese Yen prices were set for a weekly gain of 1% and 0.5% respectively. 

In contrast, gold for Eurozone investors traded in a €3 range on both sides of €1,200 per ounce losing around 0.4% on the week.

Confirming that gold demand was impacted by the stocks rallies, “there seems to be money swishing between the two,” said senior commodity strategist from ANZ bank, Daniel Hynes, indicating that the investors’ appetite for precious metals was decreasing as the equity markets rebounded.

Worldwide gold demand soared to reach 2,335 tonnes in H1 2016 led by investment demand.  This was 16% higher than the previous record set in H1 2009, as shown in the World Gold Council’s latest quarterly Gold Demand Trend report,  published on Thursday.

“Continued economic, political and social uncertainty around the globe” were quoted by the WGC as causes for a strong demand in gold “as high quality, liquid asset”.

Alistair Hewitt, the WGC’s head of market intelligence, confirmed to the Reuters Global Gold Forum on Thursday there were “three structural factors prompting institutional investors to … increase their exposure to gold,” namely the “loosening of monetary policy” with negative interest rates, “fractious politics” such as Brexit and finally less rate hikes in the US and the “consequent slowdown of U.S. dollar strength.”

At the Rio Olympics, Team GB won so far four gold medals, the equivalent of 24g of pure gold, for almost £800 at today’s spot prices, ranking 8th on Friday morning. Team USA ranked first as it collected 96g of pure gold shared between 16 gold medals for a value of more than $4100. Our infographic on the Olympic medals and their metal value for the last 120 years tells more.



This publication is for education purposes only and should not be considered either general of personal advice. It does not consider any particular person’s investment objectives, financial situation or needs. Accordingly, no recommendation (expressed or implied) or other information contained in this report should be acted upon without the appropriateness of that information having regard to those factors. You should assess whether or not the information contained herein is appropriate to your individual financial circumstances and goals before making an investment decision, or seek the help the of a licensed financial adviser. Performance is historical, performance may vary, past performance is not necessarily indicative of future performance. This report was produced in conjunction with ABC Bullion NSW.

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