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Gold rose on Friday after a mid-week dip, with the precious metal ending the week slightly down at US$1,318.20. The political and economic situation in Europe was influential this week, with weak data pointing to a slowdown in the Eurozone, and the Brexit deadline approaching. Gold climbed to its highest level in 22 months against the Euro, with gold also resilient against the dollar index despite recording its first decline in three weeks.

While numerous political risks are likely to increase demand for gold over coming weeks, the precious metal will continue to face downward pressure while the dollar remains buoyant. In other precious metal news, palladium rose 0.8 percent over the week to US$1,396 per ounce, platinum ended the week at US$796.50, and silver gained 0.5 percent to US$15.82.

Weak growth outlook for the euro zone

A significant proportion of the pressure on gold came from Europe this week, with the European Commission announcing reduced growth forecasts for the Eurozone and the Euro falling sharply as a result. Gold is now at its highest level against the Euro since May 2017, leading to a strong US dollar. The dollar recorded its best week in six months, while gold fell sharply by 0.4 percent before its recovery on Friday.

International tensions

The ongoing trade war between the US and China added to global fears over the last seven days, with President Trump saying he had no plans to meet with Chinese counterpart Xi Jin Ping before the trade talk deadline on March 1. As the Brexit deadline on March 29 also approaches, it’s proving to be a busy time for international trade negotiations. The proposed border wall between the United States and Mexico is also troubling markets, with both sides of the debate refusing to budge.

Technical resilience

Recent moves by gold to exceed the US$1,300 mark and close above it on Friday are an indication of long-term resilience. While gold was threatened by strong movement from the dollar during the week, the strength it found on Friday is interesting on a number of fronts. Despite mixed sentiment and global political uncertainty, gold has managed to gain new ground over recent weeks, at the same time as the dollar index has gained in value. Rather than its traditional role as a safe haven investment when the dollar is down, gold currently seems to be moving forward on its own terms.

GOLD PRICES bounced $5 per ounce lunchtime Wednesday in London from $1960 – their lowest of the week so far – as European stock markets rose sharply from 4 days of losses amid a drop in both the 19-nation Euro currency and longer-term interest rates following data showing the cost of living across the Eurozone falling into deflation for the first time 4 years, writes Adrian Ash at BullionVault. Euro gold prices rose towards €1660 per ounce, the top of the last 2 weeks’ trading range.

That, like Wednesday’s US Dollar and Euro gold price, marked a new record high when first reached in late-July. Inflation-adjusted yields on 10-year US Treasury bonds meantime tell Wednesday to new lifetime lows at -1.11% per annum, while real rates on 5-year debt fell to -1.44%, the lowest since Spring 2013. Gold’s inverse relationship with real interest rates reached a near-perfect -1.00 in early August as the metal set its current all-time high of $2075, but has weakened markedly since, with the 5-week correlation between Dollar gold prices and 10-year TIPS reaching -0.58 on a rolling 5-week basis after touching -0.99.

August brought ” plenty of action to drive position rebalancing,” says a note from the Asian trading desk of Swiss refining and finance group MKS Pamp, pointing to last week’s Jackson Hole speech from US Federal Reserve chief Jerome Powell – vowing to let inflation rise above its 2% target to support the economic recovery – plus Japanese prime minister Shinzo Abe’s surprise resignation for health reasons. “[But] in the end it was largely old themes which prevailed – Dollar weaker, gold stronger, and US equities higher…with ‘reflation’ trades stepping back in.”

Gold managed to rise for the second consecutive week, thanks mostly to a subdued US dollar and rising global economic concerns. The dollar was weak on the back of lower than expected economic data, with the market also waiting for a breakthrough in the US-China trade dispute. Gold ended the week at US$1,330.70, with its mid-week position at US$1,349.80 being the highest since April, 2018.

WEAK US DOLLAR

Once again, the weak US dollar was the main driver for gold prices, with the market reacting to sluggish data and expecting further weakening in anticipation of declining growth. While the dollar index was mostly unchanged on Friday, it recorded its biggest fall in a month against the six major global currencies. US-made capital goods fell during December, with this unexpected result also affecting gold prices as investors look towards a possible slowdown in the Fed’s interest hike stance.

GLOBAL ECONOMIC CONCERNS

Economic growth seems to be slowing across the world, with China, the US, and Europe all facing headwinds as trade figures drops and political uncertainty comes to the foreground. According to a report from the International Monetary Fund (IMF), the Chinese economic slowdown and US-China trade war are having a negative impact on global growth, along with financial tightening and rising political uncertainty. The IMF has predicted a 3 percent reduction in trade figures in 2019 after 4 percent growth last year and 7 percent growth in 2007.

THE SLOWDOWN IN CHINA

The economic slowdown in China is likely to be protracted and lead to rising uncertainty across global markets. While a lot of data coming from China is still strong, they will face increasing hurdles as they make the difficult transition from an export-driven economy to one focused more on domestic goods and services. Gold is a traditional safe haven investment during times of economic and political uncertainty, with the global situation unlikely to resolve itself any time soon.

TECHNICAL LEVELS

Key technical levels are having as much of an impact on gold prices at the moment as key fundamental events. If gold manages to keep growing and reach beyond US$1,350 or US$1,360, it will reach a significant one year high and match historical highs in 2016, 2017, and early 2018. While this target was almost reached mid-week, gains were erased after minutes from the Fed’s policy meeting came out indicating a very real chance of further interest rate hikes later in the year.