Gold prices snapped back with narrow gains Tuesday as the dollar was on track to snap a stretch of eight straight wins.
Gold ended Monday with a loss as the leading dollar index traded at its highest levels since December to kick off the week, cutting demand for investors buying precious metals using currencies other than the U.S. unit.
Market action was still limited by the absence of Chinese participation over the weeklong Lunar New Year holiday, as shown in this tweeted chart from the World Gold Council.
Gold: for anyone who doubted the importance of China in the international #gold market, look what happens to Comex volumes when China is out for the week-long Lunar New Year holiday. pic.twitter.com/B3ZgvWE9od
— John Reade (@JReade_WGC) February 12, 2019
Investors were also looking ahead to any potential results from trade talks this week with a delegation of U.S. officials traveling to China for the next round. U.S. President Donald Trump said last week that he had no plans to meet with Chinese President Xi Jinping before a March 1 deadline to achieve a trade deal. U.S. tariffs on $200 billion worth of Chinese imports are set to increase to 25% from 10% at 12:01 a.m. Eastern Time on March 2, if the two sides cannot reach a deal.
Gold has gained nearly 3% since the end of last year based on the most-active contract as uneasy trade progress, grouped with a series of global growth downgrades and an expected pause in Federal Reserve rate-hike policy sent investors to seek cover in lower-risk pockets of the financial markets.
“The dovish tone from the Fed may drive a more bullish case for gold, silver, and platinum over the next 12 months. This bullish case accounts for zero rate hikes this year by the Fed, which is the current consensus being priced by fixed-income markets. In fact, markets are currently pricing in the probability of a rate cut by year end,” said Maxwell Gold, director, investment strategist, with Aberdeen Standard Investments, in his February note to clients.
“These accommodative comments by the Fed have essentially put a cap on real interest rates as well as the dollar rally from 2018. Gold historically performs well when real rates are below 2% and real rates have retreated back below 1% in recent weeks,” he said.
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