'Currency Play' Can Benefit Gold Traders - Westpac
(Kitco News) - With the U.S. dollar story still dominating the gold market, precious metals traders should be looking at a “currency play,” according to one commodity analyst at Westpac.
Gold prices have been dragged down by a rallying U.S. dollar during the past month, hitting another 12-month low overnight. Despite Tuesday’s small rebound, gold is still unable to attract its usual safe-haven interest amid escalating global trade war rhetoric.
“I’m not a big safe-haven fan,” Westpac’s Justin Smirk told Bloomberg on Tuesday when asked about how he views the gold market right now. “It is very much a U.S. dollar story. And we have a much stronger view around the U.S. dollar in thinking that the current strength in the U.S. economy and higher rates will continue to support the U.S. dollar.”
Smirk added that from the greenback’s perspective, Westpac can’t get excited about gold, which is why he suggested looking at various currency plays, including the Australian dollar.
“From an Australian point of view, we can get excited about gold. We can expect the Australian dollar to underperform in the strong U.S. dollar environment. Just like we saw in Japan when gold prices in Japanese yen outperformed. In Australian dollars it is similar — it is a currency play that perhaps is more important and that’s what can benefit some traders,” Smirk explained.
Westpac also highlighted palladium, noting that the metal is shifting in how it responds to market fears.
“Overall, we have to be careful how we talk about this. Gold we see as not being a risk asset it used to be. But, you are seeing movements in other commodities around their industrial uses as well, which can have a play at this. I would be very cautious in bunching all the precious metals into one and just saying they are all going to behave in this environment linked to the U.S. dollar,” he said.
Palladium has managed to hold up reasonably well amid all of this, with the metal trading just off three-month lows. September palladium futures were last at $936.70 an ounce, down 0.14% on the day.