Gold starts the week soft on stronger dollar and cooling inflationary pressures
With the start of the new week, the precious shiny yellow was trading marginally lower failing to sustain the rally seen by the end of last week. Gold and metals in general started the week with downside tendencies mainly surrendering to the power of the US dollar which is recuperating from the extensive decline.
Gold is trading softer today around last week's London PM fixing at $1208.75; the metal is currently hovering 1028.50 down almost 0.26% from opening levels around 1210.10 setting so far the high of 1212.55 and the low of 1207.75.
Some see that the metal's drop was pressured by eased pessimism over the outlook for the global economy, which dented haven demand. Rationalizing those expectations, we can surely see the similar trend printed in the market exactly with the start of the third quarter, affecting the dollar and gold both with heavy downside pressure.
We surely know that both are inversely correlated, and their movement was not according to the text books, but if we look back at the past period, no one can deny that they did see sustained steady and correlated movement between both; as they both played the major haven demand role. Accordingly, as the dollar lost its elite status those days, gold is seemingly undergoing the same conditions.
Briefly, investors revaluing the dollar and easing the haven demand over downbeat fundamentals; the act is driving the dollar lower as investors now see that greenback is overvalued according to its fundamentals as they eased their expectations for a soon to be seen move by the feds as the recovery remains fragile.
On the other hand, the gold is under the same umbrella. Investors are easing their general pessimism over the outlook for the global economy for the euro area in particular and as the dollar is reassessed the gold's rally is too!
This trend is the dominant one in markets nowadays, and gold was not the sole metal trending lower, as the eased fears over the outlook were not that strong supportive to over industrial metals either as platinum, copper and palladium all were generally bearish; while silver which we are going to allocate as the speculative trend detector, it also revered lower with the start of the quarter.
Since the July 01 slump, metals have moves slightly higher to regain some of the losses, but still are trading in a much lower range.
If we are saying today's decline was on eased haven demand, then technically it shouldn't be the case with Asian stocks ending lower and sovereign debt fears. Nonetheless, I believe that gold was still pressured by the stronger dollar and the softer inflationary pressures which China's property prices cooling in June. This shows that the measures taken are starting to show effect, and that ignited again the subdued inflationary outlook for now.
This sentiment is only adjustment, especially ahead of the earnings season which will be the breaking point for haven demand. We still see that the general trend for gold is bullish but for now we are convinced of evident downside pressures from investors' revaluation to the volatility seen across the second quarter.