Vang SJC

Yesterday gold price fell 0.8% from $ 1,197.59 to $ 1,188.03 because Janet Yellen said that bond yields will increase when the Fed is about to raise interest rates. This has attracted investors to switch to bonds and securities instead of gold.

Earlier, gold was highly volatile, increased by the impact of the weak ADP non-farm payrolls, but then fell sharply when investors took profits.
Looking ahead, with different elements, gold could run sideways. It is most likely that price will fall to $ 1,142 price range due to the following reasons:

  • The weak economy may increases expectation that PBOC will launch economic stimulus measures. The bank will launch the Chinese version of QE. According to insiders, the PBOC will inject money to the policy banks and commercial banks to buy municipal bonds. This expectation may cause investors to buy other assets instead of gold.
  • The Fed still delay raising interest rates, making investors lose patience. Therefore, they will switch to other assets abroad to have better profit. For example, JP Morgan Chase is investing in multi-national bonds outside US borders. According to CNBC, 50% of the turnover of the S&P 500 is generated abroad. This may cause investors to leave both gold and dollars to invest into foreign markets which offer better returns.
  • Recent data showed that the number of industrial orders in Germany rebounded in March after two months of decline, reaching 0.9%. The economy is regarded as the leader of the Euro zone is developing stable and will jump this year. Besides, other economies such as Spain, Italy, France is also showing signs of recovery as services PMI exceeded forecasts. This partly explains the effectiveness of QE. Eurozone economic stability will stimulate risk appetite of investors and reduce demand for safer assets like gold.
  • Large enterprises are raising dividends for shareholders. In particular, Apple increased their dividend by 11%. CSX, Travelers, Johnson & Johnson, Procter & Gamble also announced a dividend lift. This may make investors focus on the stock market instead of gold.
  • After Janet Yellen said that the stock market is being slightly overvalued and there are risks here. US stocks drop but then bounce back. Investors may continue to invest in securities.

However, prices may also increase the price of $ 1,214/ounce because of the following reasons:

  • Bird flu outbreak in the United States, causing harm to the meet and livestock industry. The situation is expected to be worsen. Related industries are also affected. For example, the food processing enterprises face shortage of egg supply, meat processing companies cannot sell products overseas because of export ban. The US government had spent $330 million to assist farmers. Plants have to reduce capacity and lay off workers. This will make the unemployment situation deteriorated, making US labor market becomes less optimistic, making it difficult to achieve the goal of full employment, contributing to reduce the possibility of Fed’s rate hike.
  • Weak economic outlook in China may reduce demand for gold. Investors withdrew from Chinese stock market for profit-taking after prices keeps increasing in recent times amid weak economic outlook. Investors may switch to gold.
  • According to Janet Yellen’s remarks, the stock’s market is overvalued and there is potential risk of bubble. This may cause some investors to withdraw from the stock market, take profit and put money into other assets such as gold.
  • According to HSBC, India may ease regulation of the country’s gold imports duty because the current account deficit has improved.

Forecasting: It is most likely that price will fall to $ 1,142 price. However, until the US disclosure of non-farm payrolls, gold price may move mainly according to economic data. Today unemployment claims in the US will be announced. This is a useful indicator to help investors assess US labor market to some extent.

Hanh Nguyen