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Market’s Misery Translates into Gold Luster

After posting strong gains last week, gold prices continue to move higher in the Monday session. In the North American session, the spot price for one ounce of gold is $1265,65, up 0.77% on the day. There are no U.S releases on the schedule.

Gold prices jumped 1.40% last week and the base metal has climbed to 6-month gains on Monday. The equation for the sharp gains has been straightforward – a meltdown in the equity markets has sent jittery investors flocking to safe-haven assets such as gold.

U.S numbers were mixed on Friday. Final GDP came in at 3.4%, revised slightly from the initial reading of 3.5% in November. This was shy of the estimate of 3.5%, but still points to healthy economic growth in the third quarter. Durable goods reports were well short of their estimates. Core durable goods orders declined 0.3%, short of the estimate of 0.3%. This marked the first decline since May. There was better news from durable goods, which rebounded with a gain of 0.8%, after a plunge of 4.3% a month earlier.

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Investors were braced for a rate hike last week from the Federal Reserve, but had hoped for some “compensation” in the form of a dovish rate statement, given the turmoil in equity markets and signs that the U.S. economy may not be able to continue its red-hot performance. Instead, policymakers maintained plans to continue raising rates. Most significantly, policymakers did not remove the critical phrase “further gradual increases” from their statement. At the same time, the dot plot forecast was lowered for 2019, from three rate rises to two. Just a few months ago, there was talk of a “rate hike every quarter” for 2019, but the Fed has made a U-turn in monetary policy. The policy of gradual rate hikes bears much of the responsibility for the volatility in the markets, and the message from the Fed that more hikes are coming could mean more turmoil in the equity markets and further gains for the gold.

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