Gold had taken advantage of a “perfect storm” brought upon by the Bank of England’s announcement of its first ever rate cut in seven years, an all-time low of 0.25%. Because of fewer viable investment alternatives and bigger risks, the metal ticked up on Thursday, remaining near 28-month highs, as investors sought refuge from the uncertainties brought upon by the Brexit-stimulated hit on the economy.
Analysts have concluded the weak Japanese government bond demand as a sign that investors are losing faith in “unconventional monetary policies,” said the World Gold Council in its August monthly report. “In this environment, we believe investors are using gold to hedge portfolio risk as they add more stocks and low quality bonds to their asset mix,” added the World Gold Council. They also said that gold has been one of the year’s best-performing assets.
On the Comex division of the New York Mercantile Exchange, December delivery of gold traded between $1,255.25 and $1,371 an ounce before settling at $1,367.05, up 2.35 or 0.17% on the session. Seven out of eight sessions, with the slight declines, gold closed higher. Gold has soared approximately 29% over the last six months since opening the year near $1,075 an ounce. The metal is currently at its pace for one of its strongest years in a decade.
Gold likely gained support at $1,337.50, the low from July 20 and was met with resistance at $1,391.40, the high from March 14, 2014.
Economic Growth Supports
However, gold’s soar might be transient. The World Gold Council said that central banks are increasingly throwing all they can at global economies to stimulate growth. BoE’s incitement to lower interest rates in hopes of containing the Brexit-generated hit on the economy is one of these efforts. Notably, the BoE also increased its asset purchasing by £60 billion, and outlined a plan to begin buying £10 billion of corporate bonds per month and an initiative for providing as much as £100 billion to banks under a comprehensive term funding scheme.
“We have launched a timely, coherent and comprehensive package,” BoE Gov. Mark Carney said.
Although the US Dollar Index gained more than 0.20% to an intraday high of 95.87, the index is still sharply below four-month highs of 97.62 from early last week. Investors are now eyeing the US monthly jobs report for the month of July for an indication of strength in the labor market. Analysts expect to see an increase of 185,000 in nonfarm payrolls. Steady increases in wages and continued declines in unemployment over the next two months could force the Federal Reserve to raise short-term rates at its next meeting in September.
Any rate hikes by the Fed this year are viewed as bearish for gold.
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