Gold Prices Up as Fed Affirms Patience

Gold Prices Up as Fed Affirms Patience

Tuesday, 5 February 2019

Gold had an interesting week, with the precious metal recording its second weekly gains in a row to steady near a 9-month peak. Despite a slow start, gold prices picked up pace and gained momentum after reacting to a dovish Fed outlook and subsequent weak dollar. Optimism surrounding the US-China trade war also influenced prices, as did the achievement of the key technical level of above US$1,300.      

 

While gold prices dropped slightly on Friday as the dollar rose on strong jobs growth, the long-term outlook remains positive as gold ends the week at US$1,322. In other precious metal news, palladium finished the week at US$1,349.50 an ounce, platinum increased slightly on Friday to US$821, and silver fell 1.2 percent to US$15.88 after backing down from its highest level in six months.  

 

US Federal Reserve remains steady   

The biggest factor influencing gold this week was the decision by the Fed to keep interest rates steady between 2.25 percent and 2.5 percent. With four rate hikes taking place in 2018 and at least two more initially projected for 2019, this new patient narrative took some people by surprise. A dovish Fed is good news for gold, however, with the precious metal having gained almost 14 percent since the 18 month lows recorded in August. With a lack of confidence by the Fed, the economic recovery trumpeted by Trump may not be as sturdy as it seems. 

US-China trade war continues to simmer

US-China trade negotiations are still very much up in the air, with President Trump announcing that he would meet with President Xi in the near future to thresh out a new deal. The official stance is still tough from the US, however, with markets largely confused, if slightly optimistic. A more immediate concern to investors was a drop in Chinese factory activity, which fell to its lowest level in almost three years. Once again, concerns of a slowdown were good news for gold as people looked for a safe haven investment. 

The political situation in Venezuela

While the chaos in Venezuela didn't have a direct impact on gold prices, the mystery surrounding the position of socialist leader Nicolas Maduro continues to grow. According to a Russian news, a cargo plane recently took Venezuelan gold stored in Russia's central bank to Dubai in order to replace it with US dollars. Plans by the country to sell a further 29 tons of gold to the UAE in return for Euros highlights the important role that bullion plays in storing and transferring wealth around the globe.