Gold had a significant breakout overnight building on the recent bid momentum to break through that elusive US$1,400 line of resistance last breached in September 2013, with the yellow metal trading comfortably above AU$2,000 at time of writing.
Thursday’s US Federal Reserve announcement that it would keep rates unchanged had traders micro analysing every word of the statement in an effort to understand the central bank’s future intentions. A markedly ‘dovish’ Fed removed the word “patient” when referring to possible adjustments, hinting at the likelihood of several near-term interest rate cuts.
Along with this notable shift in the Feds expectations, the statement of ECB President Mario Draghi’s earlier this week that the ECB will, “use all the flexibility within our mandate to fulfil our mandate”, added to the market consensus of a shift towards monetary easing.
Use all the flexibility within our mandate to fulfil our mandate
President Mario Draghi
This comes as President Trump and Xi are due to meet at the G20 summit in Japan. A confrontation that could either be the catalyst for the development of meaningful trade negotiations, or (when considering the Trump factor) has the potential for further escalating tension between the two super powers.
The events unfolding off the coast of Iran and the aggressive US response is also adding to the feeling of uncertainty and impending volatility. The US has categorically accused Iran’s Islamic Revolutionary Guards of planting mines to tankers in a bid to disrupt this key shipping highway. This took a turn for the worse yesterday with the announcement Iran successfully downed a US surveillance drone, one which Washington claimed was flying above international waters.
These factors combined with the weakening US dollar and lacklustre global fundamentals could see an invigorated appetite for gold as a risk-off strategy supporting prices above the US$1,400 psychological line.
As always please reach out to one of our helpful Guardian Gold consultants with any questions.
