Gold has snapped out of the lethargy that caused losses earlier in the week and the Direxion Shares Exchange Traded Fund Trust is on the move once again. On Monday, the bullion edged lower to mark the third straight day of losses since it began a rally on the tailwinds of the Brexit vote. The weakness in the bullion was triggered by the impressive June jobs number that the BLS released last Friday in which U.S. employers added 287,000 jobs.
Gold prices fell by as much as 1.7% on Tuesday to mark the biggest 1-day decline since May 24. The bullion bears were quick to add insult to injury after Tuesday’s losses and their sentiment is that the bullish party is almost over.
Gold snaps out of losing trend as gains return
However, the yellow metal has defied expectations to silence the naysayers once again and the bullion is back to winning ways today. Reuters reports that the bullion has started to recover from its lowest point in nearly two weeks. This morning, spot gold was up 0.7% to $1,327.30 an ounce. You’ll remember that the bullion had recently touched a low of $1,327.30 an ounce to mark the lowest price since July 1. Gold for August delivery was up 0.5% to $1,341.50 an ounce.
In response to the rally in gold, the Direxion Shares Exchange Traded Fund Trust is boasting gains of 5.45% at $156.76 as at 11:13AM after it had previously reached a session-high of $162.85. One of the main reasons behind the reactivation of the bullish rally in gold is the uncertainty surrounding the U.S. Interest rates environment. The Fed had been dropping hints that it would raise interest rates by the middle of the year.
However, the Brexit vote and the unstable labor market is forcing the fed to err on the side of caution; hence, the fed might not raise interest rates until September. Bernard Dahdah an analyst with Natixis opines that “gold prices can continue to benefit from an uncertain economic picture for the UK and Europe after the Brexit vote and also from any quantitative easing, which also means low interest rates”.
The gold rally is just starting out
Gold has gained 27.76% in the year-to-date period and Direxion Shares Exchange Traded Fund Trust has gained 559% in the same period. Yet, analysts at UBS and Credit Suisse believe that the bullish rally in the yellow metal is just starting out. UBS analyst, Joni Teves believes that the bullion could rise up to $1,400 an ounce in the near term even though the bullion has recorded its best first half of the year gains since 1974.
Teves noted that lower yields in other assets, dovish monetary policies and the uncertainty in the economic landscape could propel an increase in the demand for the bullion. In his words, “these factors justify strategic gold allocations across different types of investors” and should encourage hesitant investors to participate.
In support of Teves’ position, Credit Suisse analyst Michael Slifirski observes that the Brexit vote has changed the world dramatically. The change is sure to bring about increased uncertainties in the economic and geopolitical landscapes. In his words, “the surprise Brexit vote has solidified and intensified macro and political uncertainty and extended the time frame for a negative real rate environment in the U.S. and potentially abroad.”