Be Careful What You Wish For…

After weeks of low volatility range trading, precious metals finally broke trend, with sharp losses seen last Friday, with Gold settling below the key support of $1180.  Fridays have been particularly bearish sessions as investors concerned with holding long positions over the weekend opt to close positions out.  Rumours that Greece was closer to a bailout deal after Thursdays summit of Eurozone ministers fuelled those concerns.  However, the Greek debt situation still appears far from over, especially after Greek Prime Minister demoted lead negotiator and Finance Minister following months of ineffectiveness in resolving the countries debt obligations. This saw the yellow metal regain lost ground to close nearly $30 higher on Monday.  In fact we’ve witnessed a complete turn-around in the fortunes of precious metals. On the one week performance, Silver led the surge higher jumping 6.1% higher, while both Platinum and Gold climbed 3% from this time last week.

Meanwhile, the US dollar index has been dragged lower, after disappointing U.S data (weaker Consumer confidence) and dampened expectations that the Fed will hint at this week’s FOMC of an imminent rate hike. This is the latest in a series of lacklustre data from the states, with yesterdays the US flash services PMI also missing consensus.  A weaker USD is positive for commodities like gold which are priced in USD as it makes them cheaper for non-dollar users. Unfortunately the weakness in USD has also pushed commodity currencies such as the NZD higher. So in NZD terms, Gold is still hovering around the $1600 NZD per oz. level.  Undervalued on medium term charts.

Looking ahead, the next 24 hours should be very eventful.  Tonight we get an update on US 1st quarter GDP with estimates as low as just 0.1% annualised.  Followed by tomorrow morning’s Federal Open Market Committee meeting.  Then closer to home, we get the latest thinking from our own Reserve Bank. Expectations are that they will try and talk the NZ currency down given how low inflation is currently running. Personally I’m looking for higher levels in the NZD/ Gold levels in the coming week.

By Adam Van Sambeek, Treasury Manager.

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