Gold futures finished higher for a second consecutive week. The catalyst behind the strength was uncertainty over Western military action in Syria and a weaker U.S. Dollar. Speculators betting on an escalation of military activity in Syria and continued tensions over a possible trade war between the U.S. and China provided most of the support. Gains were capped after the market hit its highest level since January on expectations of higher U.S. interest rates and increased demand for higher risk assets.
June Comex Gold finished the week at $1347.90, up $11.80 or +0.88%.
Gold spiked to $1369.40 early in the week after President Trump warned of the possibility of missile strikes on Syria. The rally fell just shy of the January 25 top at $1375.50. Prices retreated from that high after worries eased about the missile strike and following the release of the Fed’s March meeting minutes.
Gold was also pressured by upbeat comments from President Xi Jinping of China which seemed to ease tensions over a potential trade war with the U.S. The market was further pressured by hawkish minutes from the Federal Open Market Committee’s March meeting.
The Fed minutes showed Federal Reserve officials at their most recent meeting saw an economy growing at a strong pace and inflation moving up as well, justifying continued interest rate increases.
The meeting summary noted that “all participants” expected both the economy to strengthen and inflation to rise “in coming months.” The general sentiment likely fuels belief that the Fed will continue on its path of rate hikes.
In other news, U.S. producer inflation rose more than expected, however, consumer inflation disappointed.
Gold prices are expected to trade higher in response to the US-led missile strikes on Syria. Volatility is also expected to remain at elevated levels. The news is driving the market higher while the strict fundamentals are leaving the market vulnerable to periodic sell-offs.
Gold traders are likely to respond in a positive way to the next move out of Syria which is likely to come from the Assad regime, or its allies Iran and Russia.
In a statement released on Twitter, Russia’s ambassador to the U.S. said the country was being “threatened,” and issued an ominous warning that reprisals could follow. Russian President Vladimir Putin, meanwhile branded the coalition strike as an “act of aggression,” as he demanded an emergency session of the U.N. Security Council on Saturday.
If there is no immediate response to the attack by Syria or Russia then gold could be pressured by renewed demand for higher risk assets and/or rising U.S. Treasury yields and a stronger U.S. Dollar.
To summarize why we expect to see volatility and a possible two-sided trade, the news events over the week-end are creating uncertainty and that tends to be supportive for gold prices, however, rising interest rates and a strengthening economy tend to limit gains.
This article was originally posted on FX Empire
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