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Gold Loses As US-China Tensions Ease, Is a Respite in Sight
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It is indeed a positive development that the trade war between the two biggest world economies United States and China has been put on hold. However, this has taken the luster away from gold, a safe haven for investors in turbulent times.
Gold slid to a near five-month low, below the psychological level of $1,300 per ounce, on Monday following the statement by Treasury Secretary Steven Mnuchin’s that the White House will suspend tariffs on $150 billion worth of Chinese goods and that the Trump administration will continue to work on the deal between the economies to “put the trade war on hold.‘’ These comments gave investors enough courage to bet on riskier assets like equities and dollar, thus thumping gold.
In the recent past, escalating fears of a trade war between the United States and China have seen investors rushing to gold which pushed up its prices. However, favorable macroeconomic indicators have been working against the yellow metal. Strength in U.S. dollar, rising U.S. Treasury yields, robust retail sales and manufacturing data have been weighing on gold price. MoreoverFed’s hawkish stance on interest rates should be a dampener for gold.
Year to date, the industry has lost 17%, underperforming the S&P 500 index’s gain of 2.5%.
Dollar Strength, High Yields Weigh on Gold
Of late, dollar has been gaining strength led by an upswing in U.S. treasury yields, owing to inflationary pressure from rising oil and raw material prices.
The U.S. treasury yields have been hovering above the 3% threshold, as inflationary pressure led to a selloff in bonds with lower yields. A selloff in bond reduces its price and pulls up yields.
Rising treasury drove investors demand for dollar as investments in the currency carrying higher yields.
Any rise in dollar indicates lower demand for dollar-denominated assets like gold and silver, as a higher dollar makes precious metals a pricier investment.
On Monday, the U.S. dollar index which prices the dollar against a basket of six major currencies, rose to its five-month high, rising above the 94 level, on receding U.S.-China trade fears.
Gold stocks lost sheen with major players Kinross Gold Corporation (KGC - Free Report) , Barrick Gold Corp. , AngloGold Ashanti Limited (AU - Free Report) and Alamos Gold Inc. (AGI - Free Report) all showing weakness in their stock price after the U.S.-China truce announcement.
Positive Economic Data Makes Riskier Assets Attractive
Increase in April retail sales by 0.3% and upward revision in March sales (to a gain of 0.8% from 0.6%) show that consumer spending, which accounts for 70% of U.S. GDP, is on a rise. An increase in retail sales contributes positively to the GDP.
Record low unemployment and wage growth paints a favorable picture of an upbeat job market. Last week’s Philly Fed data revealed that factory activity in the mid-Atlantic region has picked up this month, with American manufacturers intending to offer products at higher prices and adding more jobs. Also, the Conference Board Leading Economic Index, a gauge of upcoming U.S. economic activity, inched up 0.4% in April, indicating expectations of growth in the next half of the year.
The April numbers for the ISM index for national factory activity was recorded at 57.3, slightly below 59.3 in March. A reading of more than 50 indicates that the sector is expanding.
Given that that prices of essential commodities are inching up to a desired range, paving the way for gradual rate hikes in the coming months is imminent. This should further weigh on gold prices.
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Gold Loses As US-China Tensions Ease, Is a Respite in Sight
It is indeed a positive development that the trade war between the two biggest world economies United States and China has been put on hold. However, this has taken the luster away from gold, a safe haven for investors in turbulent times.
Gold slid to a near five-month low, below the psychological level of $1,300 per ounce, on Monday following the statement by Treasury Secretary Steven Mnuchin’s that the White House will suspend tariffs on $150 billion worth of Chinese goods and that the Trump administration will continue to work on the deal between the economies to “put the trade war on hold.‘’ These comments gave investors enough courage to bet on riskier assets like equities and dollar, thus thumping gold.
In the recent past, escalating fears of a trade war between the United States and China have seen investors rushing to gold which pushed up its prices.
However, favorable macroeconomic indicators have been working against the yellow metal. Strength in U.S. dollar, rising U.S. Treasury yields, robust retail sales and manufacturing data have been weighing on gold price. MoreoverFed’s hawkish stance on interest rates should be a dampener for gold.
Year to date, the industry has lost 17%, underperforming the S&P 500 index’s gain of 2.5%.
Dollar Strength, High Yields Weigh on Gold
Of late, dollar has been gaining strength led by an upswing in U.S. treasury yields, owing to inflationary pressure from rising oil and raw material prices.
The U.S. treasury yields have been hovering above the 3% threshold, as inflationary pressure led to a selloff in bonds with lower yields. A selloff in bond reduces its price and pulls up yields.
Rising treasury drove investors demand for dollar as investments in the currency carrying higher yields.
Any rise in dollar indicates lower demand for dollar-denominated assets like gold and silver, as a higher dollar makes precious metals a pricier investment.
On Monday, the U.S. dollar index which prices the dollar against a basket of six major currencies, rose to its five-month high, rising above the 94 level, on receding U.S.-China trade fears.
Gold stocks lost sheen with major players Kinross Gold Corporation (KGC - Free Report) , Barrick Gold Corp. , AngloGold Ashanti Limited (AU - Free Report) and Alamos Gold Inc. (AGI - Free Report) all showing weakness in their stock price after the U.S.-China truce announcement.
Positive Economic Data Makes Riskier Assets Attractive
Increase in April retail sales by 0.3% and upward revision in March sales (to a gain of 0.8% from 0.6%) show that consumer spending, which accounts for 70% of U.S. GDP, is on a rise. An increase in retail sales contributes positively to the GDP.
Record low unemployment and wage growth paints a favorable picture of an upbeat job market. Last week’s Philly Fed data revealed that factory activity in the mid-Atlantic region has picked up this month, with American manufacturers intending to offer products at higher prices and adding more jobs. Also, the Conference Board Leading Economic Index, a gauge of upcoming U.S. economic activity, inched up 0.4% in April, indicating expectations of growth in the next half of the year.
The April numbers for the ISM index for national factory activity was recorded at 57.3, slightly below 59.3 in March. A reading of more than 50 indicates that the sector is expanding.
Given that that prices of essential commodities are inching up to a desired range, paving the way for gradual rate hikes in the coming months is imminent. This should further weigh on gold prices.
Each of the stocks mentioned above carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
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