Weaker USD Boosts Gold

Gold prices reached an almost 1 month high on Tuesday, being positively affected by market anticipations that the Federal Reserve Bank will suppress any near future plans for monetary policy tightening as other central banks continue easing. Gold for December delivery closed at $1,372.60 a troy ounce which is around 1% higher on the Comex side of the New York Mercantile Exchange, since July 6, this is the highest settlement price.

Gold prices have grown more than 4% since the lows previously seen in July, as the weak economic data turnout from the US and last month dovish message from the Feds have pressured many investors to discard all hopes for a Fed rates hike in September. Anticipations for lower rates is always a positive factor for gold price movements, it fights to compete with yield bearing investments when borrowing costs increase and doesn’t pay its holders.

“There is a feeling that the Fed can’t do much, even if they want to, and that’s pushing people into gold,” said Ira Epstein, a strategist at the Linn Group, he also added that, “gold prices are likely to hit $1,400 a troy ounce before pulling back”.

Trades hinged on the federal-funds futures, the well-known means for traders to act out their views on the central bank policy standing, revealed that traders had placed the possibility of a Fed rates hike by September at 15%, this is lower than the 18% shown a day earlier. Gold is also receiving a significant amount of support from easing measures from other central banks.

Australia central bank in reaction to the reported shrinking jobs market and record-low inflation had no choice but to slash their rates as they wrestled the risks of intensifying house-price growth. In an attempt to control the aftermath of the UK’s vote to exit the Eurozone a lot of traders anticipate that the Bank of England will ease monetary policy in their Thursday meeting.

With investors always looking to protect their wealth against currency weakness and inflation, a weaker monetary policy will most likely increase the demand for gold. The dollar was recently 0.18% lower at 86.14 on the Wall Street Journal Dollar Index, which is used to evaluate the dollar relative to a basket of 16 currencies, this slump is also giving investors a reason to go bull on Gold. Gold is a lot more affordable when the dollar is low as the precious metal is valued in dollars.

“The Fed seemingly is in hold mode, which is positive for gold, but every once in a while they let slip that September is still a possibility for a rate rise,” said David Govett, head of precious metals at brokerage Marex Spectron in London.

With some investors warning that the markets may be understating the likelihood for a fed rates hike in the US.

We all have to watch the signs on Friday when the US Labour department employment figures are released as it provides all hints of either a possible or an impossible fed rates hike in September.