The biggest factor is US-China trade dispute. While US and China are moving closer to signing a phase one of trade deal in January, market players are skeptical because of vast differences between the two over various issues.
Ravindra Rao
Gold has scaled to $1,500 an ounce for the first time since early November, breaking out of the rangebound trade seen in the last few weeks. The rally comes at a time when market players are closing their books ahead of year-end. With the recent push up, gold is set to end the year with a gain of over 15 percent, its best since 2010.
Gold rallied to 7-week high despite continued strength in US equity market and stable US dollar. US DJIA index surged to record high level this week amid US-China trade deal optimism. The US dollar index has been steady near 97.6 levels amid lack of fresh cues.
This shows that market players are looking beyond current factors and want to remain invested in the metal. Outlook for gold is upbeat as a large number of unresolved issues are still lingering which could keep financial markets volatile in the new year as well. The adverse positioning of gold against equity market is also being seen as an opportunity to invest in the metal. US DJIA index is near record high level and while overall sentiment is still positive, negative developments could cause a substantial correction.
The biggest factor is US-China trade dispute. While US and China are moving closer to signing a phase one of trade deal in January, market players are skeptical because of vast differences between the two over various issues. Past debacles in talks has also kept market players nervous about another fallout.
Another factor to look for is monetary policy of Fed and other central banks. Fed forecasts indicate that the central bank want to keep interest rate unchanged till end of 2020. Fed has taken an open-ended approach and may not indicate a rate hike or rate cut unless there is a significant change in US economic outlook. With persisting challenges to US and global economy, Fed may remain open to consider additional cuts.
Other events which may cause volatility is Brexit and impeachment proceedings against President Trump. Britain is expected to exit the European Union by the January 31 deadline however market players are uncertain about impact of exit on UK and European economy. US President Donald Trump is unlikely to be forced out of office given the majority of Republicans in the Senate however a prolonged trail could cause uncertainty.
(The author is VP – Head Commodity Research at Kotak Securities.)
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First Published on Dec 27, 2019 10:35 am
Source: Money Control
