Gold price breaks higher

Marius Paun | London, UK | Senior dealer | Friday, 21st June 2019

Gold made a break above the $1350 – $1360 area which has offered solid resistance for the last few years, reaching $1400 level. The move came after the Federal Reserve hinted it will soften its monetary policy thus hurting the greenback.

China has cut its holdings of US Treasury by $7.5 billion in April to $1.11 trillion, the lowest mark in almost two years according to Bloomberg. At the same time People’s Bank of China added 240 billion yuan into the banking system, via a one-year (medium term) lending facility, in an attempt to increase banking liquidity. To further counter the US tariffs and limit the damage on its economy, China has lowered duties on non-US imports.

The US Federal Reserve held interest rates unchanged in a range between 2.25% – 2.5%, as anticipated, but added the economic activity has been rising at a moderate pace (changed from ‘solid pace’ last month). Chair Powell acknowledged that inflation dropped, trade risks have grown but ‘he wanted to see more’ before cutting. Markets have now almost fully priced in a rate cut of 25 basis points in July with further cuts expected to follow. Quite a turnaround over the year..

After dropping to a recent low of 1.25 to the dollar, the pound sterling managed a small rebound following steady inflation data with CPI figures coming in at +2.0%, in line with consensus. However, selling pressure remains with the continues political uncertainty. On Thursday, the Bank of England left its benchmark rate unchanged at 0.75% with overall language also remaining the same.

Meanwhile ECB President Mario Draghi said more rate cuts are part of the central bank’s key tools, joining the US Fed in taking a renewed dovish stance. Ironically, such actions attracted indignation from President Trump who tweeted that ‘ECB chief remarks make it unfairly easier for them to compete against the US’.

Reserve Bank of Australia has released its June 2019 monetary policy board meeting minutes saying further easing would be appropriate. The labour market, in particular, would be expected to bear the most weight, although lower rates are expected to push down the value of Aussie dollar.