Gold closed virtually flat on Monday in choppy trade, as Shinzo Abe’s landslide victory in Japan and the likelihood of Theresa May’s appointment as David Cameron’s replacement in the U.K. helped reduce global political uncertainty, offsetting the rising probability of further easing measures by top central banks worldwide.
On the Comex division of the New York Mercantile Exchange, Gold for August delivery traded between $1,352.00 and $1,376.40 an ounce, before settling at $1,356.95, down 1.45 or 0.11% on the session. Over the weekend, gold ticked up to fresh 28-month highs at $1,376.40, extending modest gains from the prior week. While Gold retreated slightly over the final two sessions of last week, the precious metal still posted its sixth consecutive weekly gain amid widespread concerns of extreme volatility on global financial markets. Since opening the year around $1,075 an ounce, Gold has surged approximately 30% over the first seven months of 2016.
Gold likely gained support at $1,323.50, the low from June 8 and was met with resistance at $1,391.40 the high from March 17, 2014.
In Japan, equities surged almost 4% while the Yen weakened sharply after Abe promised to move ahead with a raft of major constitutional reforms following his party’s landslide victory in upper-house elections over the weekend. As part of his plans, the Japanese prime minister unveiled a ¥10 Trillion ($98 billion) stimulus measure aimed at jumpstarting the economy, including a proposal to fast-track construction on a series of high-speed trains throughout the nation.
While the Nikkei 225 soared 601.84 or 3.98% to 15,708.82, the Yen fell considerably against the U.S. Dollar on prospects that Abe’s Liberal Democratic Party (LDP) and their junior colleagues in the house could approve the fiscal stimulus. In U.S. afternoon trading, USD/JPY jumped 2.10 or 2.09% to 102.69, remaining on pace for its strongest one-day move since late-April.
Elsewhere, investors kept a close eye on political developments in the U.K. after Andrea Leadsom pulled out of the closely-watched Prime Minister campaign, leaving May as the lone candidate to succeed Cameron. May’s appointment on Wednesday could augment Britain’s chances of gaining access to the European Union’s single market, strengthening the Pound and soothing investor’s concerns throughout the euro area.
GBP/USD rallied upon the news, briefly eclipsing 1.30 before falling back to 1.2973 in the U.S. afternoon session. The Pound Sterling has lingered around 31-year lows against the Dollar since voters in the U.K. surprisingly approved a measure paving the way for a British departure from the EU in late-June.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, rose more than 0.40% to an intraday high of 96.81. Although the dollar has rebounded sharply since the historic Brexit referendum, the index is still down more than 3% since early-December. Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.
The S&P 500 Composite index soared to an intraday high of 2,143.16 in broad risk-on trade, jumping to its highest intra-session level on record. Investors brace for the start of the second quarter earnings period on Monday when Alcoa (NYSE:AA) releases its quarterly results after the close of trading. The S&P last set an intra-day record on May 20, 2015 when it hit session highs of 2,134.72.
Gold is viewed as a hedge for investors in periods of heightened volatility on global equity markets.
Market players also reacted to improved odds for a 2016 rate hike from the Federal Reserve in the wake of Friday’s robust U.S. employment report. On Monday, the CME Group’s (NASDAQ:CME) Fed Watch tool increased the probability of a December rate hike to 30.1%, up from 22.5% at the end of Friday’s session. Before the release, the odds of a single rate hike by the Fed in 2016 stood at 12%. In addition, Kansas City Fed president Esther George, a noted hawk, told a management conference in Missouri that the rebound in the labor market last month could compel her to resume a push for advocating an imminent rate hike.
Investors who are bullish on Gold are in favor of a gradual tightening of monetary policy by the Fed. Gold, which is not attached to interest rates, struggles to compete with high-yield bearing assets in rising rate environments.
Dollar denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.
Silver for August delivery jumped 0.238 or 1.18% to $20.337 an ounce. Last week, the front month contract for silver futures surged above $21.20 an ounce to hit fresh two-year highs.
Copper for September delivery rose 0.027 or 1.27% to $2.146 a pound.
SOURCE: Investing.com
