Risk Appetite for Gold Rises

As I mentioned in my earlier article that bullish sentiments continue to prevail in the precious metals market, this week marked yet another justification for the same. I had even told that one should wait for a drop in order to enter the markets.
After its recent sharp price fall, the gold price bounced back rapidly to retake the $1,500 level. Here we saw many people running to buy the yellow metal over rising geo-eco and political concerns.
With negative investor sentiment on global growth and trade and the meltdown in equity markets, there has been a flight to safe havens.
The US dollar didn’t underperform much, but with equities plummeting over slower global growth, we saw precious metals taking advantage of this situation.
Gold got a strong platform to rise over the following factors-

  • Rising recessionary fears
  • US rate cut likelihoods still expecting further cuts
  • Geopolitical tensions

These factors are repeatedly influencing bullish sentiments for gold. Furthermore, significant data awaits, and although it’s out of the US and could affect the greenback, it’ll also affect risk appetite and hence potentially result in a shift in appetite for the precious metal.
The precious metal jumped 1.4% on Wednesday after disappointing hiring by U.S. private employers unnerved investors already concerned about slowing growth in the world’s largest economy.
As a consequence, equities markets took yet another big dive, re-igniting safe haven demand for precious metals, and gold and silver in particular, both of which saw big percentage increases, although neither are back to their recent highs.
The world is being shown quite a different picture which was contradicted by the data released over the week. It seems that economic data is not as strong the Trump Administration would want us to believe.
Apart from the other crisis, even weak data resulted in higher gold prices. Important numbers released from the US-

  • The recently released PMI data, with the September Chicago PMI coming in at 47.1 – falling for the third time in four months.
  • A reading below 50 signifies weakness in the manufacturing sector and the Chicago PMI covers the U.S.’s manufacturing heartland.
  • The job market has shown signs of a slowdown.The latest non-farm payrolls increase released, showed weaker than anticipated private sector job market growth at 135,000 new jobs created against market expectations of 140,000 and the previous month’s 157,000.
  • The average monthly job growth for the past three months was 145,000, down from 214,000 for the same time period last year.

Does this mean that the US is heading for a recession? A partial yes and a partial no put the markets into a dilemma. Whatever the likelihood is of this, this latest economic data has to raise the odds of the U.S. Federal Reserve moving to reduce interest rates yet again at this month’s FOMC meeting – due at the end of the month.  And possibly again at the December meeting if no improvement is seen before then.  Lower U.S. interest rates are positive for gold in U.S. dollar terms at least and it is U.S. dollars that markets view the gold price, despite the yellow metal being at, or close to, all-time highs in much of the rest of the world.

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