Precious Metals Weekly Round-up: Gold Price Rally Stalls on Stronger US Dollar

Gold began to rebound on Friday (September 6) after tumbling during the previous trading session on the back of a heightened US dollar.

The yellow metal declined when it fell under the pressure of impressive private payrolls and services industry data that had investors returning to riskier assets and backing away from the safe haven precious metals offer.

Gold lost over 2 percent during Thursday’s (September 5) session and is now headed for its second consecutive week of losses.

“Thursday’s data was positive, causing gold prices to reduce. We now expect a lot of volatility in the gold markets,” said Brian Lan, managing director at dealer GoldSilver Central. “Gold is still seen as a safe haven asset. A correction is bound to happen.”

Despite gold losing some steam this week, the situation between the US and China continues to grab the attention of market participants. It will more than likely be the catalyst behind more price rallies for the metal.

“Gold will remain vigorous over global recessionary fears, heightened geopolitical risks and dovish US monetary policy in Q3,” noted Benjamin Lu, analyst at Phillip Futures.

“There’s also a strong undercurrent of demand for gold based on the issues behind that explosion in negative yields. In short, the global economy is now completely dependent upon not only easy money, but ever-easier money,” he added. “Not only that, but a decade of exorbitant debt creation has ballooned the US federal debt to levels that will no longer allow for higher rates, much less anything approaching historically normal rates.”

Looking ahead, the US Federal Reserve and the European Central bank are expected to cut rates this month in order to stimulate the economy. If another cut takes place in September, it is likely that interest rates will be decreased by 25 basis points, or 0.25 percent.

Additionally, market participants are also bracing for a potential US recession, leading them to add gold to their portfolios as a safe haven during a potentially turbulent time in the markets.

“The prospect of ultra-low to negative real rates for as far as the eye can see justifies much higher gold prices. Add in the political and economic uncertainties, including the potential for a US recession, and I think gold will breach US$1,600 before the end of the year,” Brien Lundin, editor of Gold Newsletter, told the Investing News Network.

As of 10:15 a.m. EDT on Friday, gold was trading at US$1,518.50.

Silver also fell prey to a rising greenback and investors backing away slightly from the safety it has been offering them in the last month. In fact, during Thursday’s session the white metal slumped almost 5 percent as it is more volatile than gold.

It is this volatile nature that saw the white metal cross over the US$19 per ounce range on Wednesday (September 4), when it hit its highest level in three years, before losing more than its Wednesday gains the next day.

Despite the recent downturn for silver, market watchers still believe that it will continue to grow in price because of how closely it follows gold and the yellow metal is predicted to pick up steam once again.

“Silver is being driven by gold, which is an encouraging sign in that this fact confirms that one of the primary drivers of the gold rally is concern over the future values of fiat currencies,” Lundin said. “At this rate, it won’t be long before the US$20 level starts to act like a magnet, and I would not be surprised to see silver breach that benchmark before November.”

As of 10:35 a.m. EDT on Friday, silver was changing hands not far from US$19 at US$18.85.

As for the other precious metals, platinum rebounded slight on Friday after dropping more than 3 percent on Thursday.

Despite the the mid-week decline, the metal continues to climb in the market as it experiences another week of trading over US$900 per ounce.

While analysts at FocusEconomics see the price of the metal rising slightly from its current level, they believe it will continue to be muted and trail behind its sister metal palladium. However, the market is currently regarding platinum as the cheaper precious metal when stacked against gold. If predictions that the yellow metal will continue its price increase prove true, platinum will more than likely continue to be supported by this as investors look for a cheaper alternative to gold.

As of 10:50 a.m. EDT on Friday, the metal was trading at US$961.

For its part, palladium was also no stranger to the declines the other precious metals made on Thursday. Notwithstanding, palladium has claimed another week as the highest trading precious metal.

As of 11:00 a.m. EDT, palladium was trading at US$1,533 per ounce.

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Securities Disclosure: I, Nicole Rashotte, hold no direct investment interest in any company mentioned in this article.