Gold higher on rate cut expectations

28 October, 2019

The gold price surged back above the $1500 mark in yesterday’s trading session after another round of disappointing economic data from the US raised expectations of another rate cut from the US Federal Reserve

The latest durable goods figure, which hit the market well below expectations added more evidence to the theory that the US economy is not doing so well and with inflation remaining subdued the Fed seems to have no choice but to ease monetary policy further.

“The bump we got now is because of the miss on durable goods numbers in the U.S.,” said Bob Haberkorn, senior market strategist at RJO Futures

“We had a couple of misses in the last few weeks on these numbers, be it retail sales or durable goods, and some of the PMI numbers. Overall, it lends support to another rate cut from the Fed before year-end.” He added.

The Central Bank has cut interest rates twice this year and investors currently see borrowing costs moving lower when board members meet next week as the economy struggles over the fallout from a never-ending U.S.-China trade war and slowing global growth.

Lower interest rates and weak inflation figures, which are expected to remain under the Fed target rate for some time all sit well for gold and this may set the stage for the next rally of around $200 according to some analysts.

"We looked at all the traditional factors and compared their relative valuation against gold to determine whether it is over- or under-valued. We found that gold is primarily driven by interest rates, inflation expectations and the USD," said ANZ senior commodity strategist Daniel Hynes and commodity strategist Soni Kumari.

"Based on current prices, our model shows gold's current fair value is around $1,400 but gold bugs should not despair. A drop in gold to $1,400 could eventually boost the precious metals. Our model suggests prices could breach $1,700 over the next six months. This offers opportunities for consumers, producers and investors. A pullback to fair value, in the short term, could present an opportunity for increasing exposure to the metal. With solid fundamentals, gold remains a good prospect for portfolio diversification." They added.


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