Gold investors tend to love “bad news” because bad news in the economic landscape often leads to gains in the yellow metal. Last Friday, the second quarter GDP data showed that the U.S. economy is growing at a weak pace the bullion and the Direxion Shares Exchange Traded Fund Trust booked gains. The uptrend continued on Monday as the yellow metal and its derivatives started August on a bullish note.
It was however, noted that this week is pregnant with market-moving data of economic data and that it would be smart to wait until most of the economic data are out before making a final decision on where the bullion is heading. The latest set of economic data has continued to paint a gloomy economic outlook and the bullion is booking gains because investors are seeking refuge in the safe-haven prospects of the yellow metal.
Poor economic data brightens the prospects of gold
On Tuesday, the yellow metal continued its bullish rally and gold for December delivery ended the session with 1% gains at $1,372.60 an ounce, which marks the highest closing price since March 2014. The Direxion Shares Exchange Traded Fund Trust also recorded 3.56% gains to end the session at $172.35.
The uptrend in the bullion is a direct result of increased investors’ concern after the second quarter GDP growth failed to meet expectations. Investors are now worried that the U.S. Federal Reserve is not confident to raise the interest rates. The possibility of a rate hike has weakened the prospects of the yellow metal in the last couple of weeks.
However, the weak economic outlook might force the fed to delay raising interest rates. Ira Epstein, managing director at Linn Group observed that “There is a feeling that the Fed can’t do much, even if they want to, and that’s pushing people into gold.” She furthermore noted that “Gold is accepting the fact monetary policies aren’t working.”
Dollar falls as Australia and Japan goes takes the offensive
The fact that monetary policies are not working is seen in the actions that the Reserve Bank of Australia and the Bank of Japan have made to jumpstart growth in their economies. On Tuesday, the Reserve Bank of Australia slashed its cash interest rate by 25 basis points to 1.5% to mark the second reduction in interest rates since May. More so, the Bank of Japan approved a 13.5 trillion yen ($132 billion) stimulus package to jumpstart growth in the ailing Japanese economy.
In response to the policy moves in Australia and Japan, the U.S. dollar lost some of its value: weakness in the greenback often results into gain for gold and Direxion Shares Exchange Traded Fund Trust . For instance, the WSJ Dollar Index, which tracks the U.S. Dollar against a basket of 16 currencies recorded a 0.7% decline to 86.16 during the session.
The Australian Dollar gained 1% or 0.0075 against the dollar as the AUDUSD spot exchange rate stands at 0.7611usd from the previous closing price of 0.7536usd. More so, the Japanese Yen Japanese Yen made had a decent rally leading a to 1.60% gains against the dollar and the JPYUSD spot exchange rate stands at 0.009922 up from a previous close of 0.009766.