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Gold Breaches $1,400 In USD, Sets All-Time Record In AUD

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Gold Breaches $1,400

(Kitco News) - Gold prices are soaring in all currencies, breaching $1,400 an ounce in U.S. dollar terms and setting an all-time record of $2,010 in Australian dollars during the early Asian trading on Friday.

The yellow metal soared after the Federal Reserve kept rates steady on Wednesday but opened the door to rate cuts as soon as July by removing the word “patient” from its latest monetary policy statement.

Spot gold in USD surged to $1,411.83 early Friday, touching nearly a six-year high and rising more than 1.3%, according to Kitco’s aggregated charts.

Gold in Australian dollar terms also saw strong gains, with spot gold rising more than 1% on the day and last trading at $2,027.95.

“There is a lot of love for gold and it is way overcooked,” Chris Weston, head of research at Melbourne-based foreign exchange brokerage Pepperstone, told Kitco News on Friday. “Everything is lining up for further levels. The question is, do you get it now or wait for a pullback. There is a very low probability in trying to be short.”

The biggest driver is all about the Fed and its July rate move as markets are already pricing in a rate cut, with the only question remaining whether the central bank will cut by 25 basis points or 50 basis points.

“If the roadmap, which the market is implying, comes to fruition then gold will go higher. And the next catalyst in the short-term will be whether or not the Fed will cut 50 basis points in July rather than 25, which is fully priced in. For that to happen, we will need to see no clear signs of convergence at the G20 and weak non-farm payroll numbers,” Weston explained.

With gold jumping up so much so quickly, many investors would be tempted to buy on dips, Weston added while noting that the fallbacks are likely to be “fairly limited.”

“There is so much momentum behind [the rally] … Since the 31st of May, every time we came down to test the five-day exponential moving average, which is trending higher, the buyers have stepped back in. Until the price can close below that level, you would not be anything else but being long [gold],” Weston pointed out.

With the dovish Fed giving market direction to expect rate cuts, gold is benefiting across all currencies — looking best in AUD- and USD-terms, said Weston.

For gold in Australian dollars, a lot depends on the weak currency, which has been falling on the Reserve Bank of Australia (RBA) lowering its cash rate to 1.25% in June — the first cut in almost three years.

“I really like gold in Aussie terms. I think the thing that is being misunderstood is where the RBA is taking us now. Don’t discount how important carry or the yield differential on the short-term rates are for currency direction, especially when you get big investment funds, who look at their foreign investment portfolio and look at hedging ratios. We think that those hedging ratios are going to continue falling, and that means the Australian dollar will continue going lower,” Weston stated.

Live 24 hours gold chart [Kitco Inc.]

At the end of the day, gold is not a currency play, but investors can look at gold in AUD in order to maximize returns, said Weston.

“Gold has been taken as a currency in isolation, like the best house in a bad neighborhood. If you want to heighten that profit, then you pick the weakest currency. Right now that looks like the AUD. We are expecting the RBA to cut … [and] expecting the RBA cash rate to peak out somewhere between 50-75 basis points. When we get through 1%, there will be an accelerated conversation about what the trigger points will be for quantitative easing in Australia.”

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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 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.