Gold has posted gains in the Wednesday session. In North American trade, the spot price for an ounce of gold is $1316.80, up 0.30% on the day. On the release front, it was a quiet day. Import Prices slowed to 0.1%, short of the estimate of 0.4%. On Thursday, the US releases PPI reports and unemployment claims.
The US dollar is under pressure on Wednesday, and gold has moved higher. The catalyst for this move was a report on Wednesday that China was considering slowing or halting the purchase of US government bonds. China boasts the largest currency reserves, estimated at $3 trillion. It is also the biggest holder of US government bonds, in the amount of $1.19 trillion. Why would China make this move? One reason is that it may consider US treasuries less attractive compared to other assets. As well, it could be part of China’s strategy to flex some muscle as a possible trade war looms between the US and China, which are the two largest economies in the world. The report has pushed US Treasury yields higher and sent the US dollar downwards.
Gold prices have shown strong gains since mid-December, leaving many investors scratching their heads. A robust US economy and a December rate hike from the Federal Reserve have increased the appetite for risk, and the stock markets have pushed higher since the New Year. This should translate into lower prices for safe-haven gold, but the base metal has jumped on the bandwagon and posted strong gains in early January. On Friday, gold touched a high of $1326, its highest level since mid-September. Will enthusiasm for gold continue? Much will depend on the strength of the US dollar – if the greenback runs into headwinds against the major currencies, gold could resume its rally.
