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Gold surges on weaker US dollar post FOMC minutes

10-Jan-2019

COMEX gold trades higher near $1295/oz supported by weakness in US dollar index. While gold has edged up, we need to see a break above $1300/oz for the recent rise to continue.

The US dollar index trades weaker near 95.15 levels after a 0.7% decline yesterday. The US dollar has weakened post FOMC minutes which indicated that the central bank may not increase interest rates aggressively in 2019.

The US Fed, at its last meeting in December, raised interest rate by 0.25% to 2.25-2.5%. Minutes of the meeting showed that a few did not support the central bank's rate increase that month. Minutes also noted that many policy makers felt the central bank could afford to be patient about further policy firming.

Fed officials also highlighted the range of downside risks policy makers are facing, such as the possibility of a steeper downturn in global growth, an escalation of the trade war, or a larger- than-expect impact from their current tightening so far.

Apart from FOMC minutes, a spate of Fed officials including Raphael Bostic of the Atlanta Fed, Charles Evans of Chicago, James Bullard of St. Louis and Eric Rosengren of Boston warned against assuming the economy warrants further rate increases. Fed's stance shows that they are seeing risks to US economy and want to wait for more clarity before considering next rate hike.

Gold has also gained support from ETF inflows which have risen to the highest level since July 2018. Safe haven demand for gold rose also amid continued partial shutdown of US government and concerns about Brexit and disappointing Chinese inflation data.

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