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Standard Chartered: Gold’s Strongest Correlation Now With U.S. Dollar

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The inverse correlation between gold prices and the U.S. dollar has strengthened, with recent greenback weakness underpinning the yellow metal, says Standard Chartered. Gold bounced on Friday following weaker-than-forecast U.S. retail sales and inflation at the consumer level. “Gold maintains its strong correlation with U.S. macro factors, and while it continues to track 10-year U.S. Treasuries closely, its strongest relationship is currently that with the USD,” Standard Chartered says. “The three-month rolling correlation has strengthened to around 65% in recent sessions, while the three-month rolling correlation with 10Y USTs sits around 50%....Amid a fragile physical floor, gold prices are trying to gain upside momentum as macro drivers turn increasingly favorable.”

By Allen Sykora of Kitco News; asykora@kitco.com

 

UBS: Gold Lacks Urgency To Rally Further

Monday July 17, 2017 9:14

UBS describes the backdrop for gold as favorable but also says there appears to be “no urgency to chase it higher” for now. A recovery from multi-month low prices earlier this month “has been underwhelming considering several factors that are in gold's favor: net positioning is extremely light, the dollar is under pressure, rates have eased back from recent highs and U.S. data has been relatively soft of late,” UBS says. The limited interest may be in part due to many market participants being away for summer holidays, the bank says. “While gold investors like gold's diversification attributes, most have been reluctant to get meaningfully involved in the gold market against a backdrop of policy normalization, not only by the Fed but also by the ECB [European Central Bank]. This is currently gold's biggest challenge,” UBS says. “There are enough supportive factors currently and we think the downside has now likely been contained. But at the same time, there is also a lack of catalysts strong enough to encourage investors to chase gold higher here.”

By Allen Sykora of Kitco News; asykora@kitco.com

 

RBC’s Gero: Gold Gains Are ‘Better Type Of Rally’ Than Even-Driven Spike

Monday July 17, 2017 9:14

The continuing rise in gold “is a better type of rally” than a single event-driven spike higher, says George Gero, managing director with RBC Wealth Management. He describes the market steadily improving due to a number of fundamental influences, including a weaker U.S. dollar and 6.9% second-quarter economic growth in China, one of the world’s two largest gold-buying nations. Should gold close higher again, more short covering could be triggered, Gero says. This is where market participants buy to offset trades in which they previously took our short, or bearish, positions. As of 8:56 a.m. EDT, Comex August gold was $5.50 higher to $1,233 an ounce.

By Allen Sykora of Kitco News; asykora@kitco.com

 

Goldman Sachs: Metals Strong When Spreads Point To Tightness

Monday July 17, 2017 9:14

Metals are among the commodities that tend to fare best when time spreads suggest market tightness, Goldman Sachs says. Bank analysts say “the physical nature of commodities has always been the cornerstone of our research framework.” Lower inventory levels tend to lead to more “backwardated” futures curves for both oil and copper, Goldman says. Backwardation is when forward contracts are more expensive than the deferred, often seen as a sign of market tightness and the reverse of the normal spread. In the case of metals, “super backwardation is associated with both positive roll yields and price increases, boosting total returns,” Goldman says. On a risk-adjusted basis, returns have been the highest for metals when one-year time spreads “are in the top quintile of their historical distributions,” analysts continue. “Therefore, a carry strategy that goes short in the first [to] seventh deciles and goes long in the eighth [to] 10th deciles has the potential to improve the performance of metals investment.”

By Allen Sykora of Kitco News; asykora@kitco.com

 

Gold Hovering Around Key 200-Day Moving Average

Monday July 17, 2017 7:56

Gold’s 200-day moving average – currently around $1,230 an ounce for spot metal -- remains a key technical-chart point for the yellow metal, traders and analysts say. “If it were to rise above this level in any lasting fashion, we could see technical follow-up buying,” Commerzbank says. The metal was above this average on Friday after soft U.S. economic data, dipped slightly below in Asia-Pacific trade Monday but is just above it again. “Gold traded with a mild bid bias during Asian hours on Monday, importantly breaking back above the 200 DMA in early session flows and notably seeing solid regional physical interest,” says Sam Laughlin, senior trader of precious metals with MKS (Switzerland) S.A. “Early Chinese interest saw gold to the session high of $1,232.20, while the remainder of the session saw the metal locked within a narrow range. The short-term key for the metal will be holding around the 200 DMA, with targets extending to $1,235 -$1,240 and $1,250 beyond this.” As of 7:37 a.m. EDT, spot gold was up $4 to $1,231.50 an ounce.

By Allen Sykora of Kitco News; asykora@kitco.com

 

BBH: Markets Doubt Fed Commitment To Hike Interest Rates

Monday July 17, 2017 7:56

Financial markets have doubted the Federal Reserve’s commitment to raise interest rates all year, says Brown Brothers Harriman. “Perhaps it reflected, in part, the disappointment after the dot plots had suggested four hikes in 2016, and only one was delivered,” BBH says. “The markets were skeptical of the March hike until officials launched a full-court press to convince it otherwise. Officials needed less of a campaign about the June hike. It is a possible third hike this year that the market is now skeptical of.” On June 15, a day after the last meeting of the Federal Open Market Committee, the September Fed funds futures contract implied about an 18% chance of a hike, BBH says. This has now fallen to an 8% chance. “The market is skeptical of a December move but less so than after the June hike,” BBH says. “A month ago, the market had discounted about a 41% chance of a hike. The pricing implied a 47% chance before the pre-weekend data, which spurred a reassessment that brought the odds down to almost 43%.” Fed policymakers seem to have formed a consensus on reducing the balance sheet before hiking again, BBH adds. “Many of the Fed officials' word cues continue to suggest a desire to begin its balance-sheet operations soon,” BBH says. The September FOMC meeting may be a likely time, since there is a scheduled press conference, BBH says.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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