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Thursday, December 13th, 2018 - Buy Gold - Bringing you trusted gold news and gold investing information since 2006

Inflation and Debt Concerns Push Gold higher

A rate hike from China which put inflation concerns back in the spotlight, and  worries over euro zone and US debt lifted the shiny metal’s haven appeal.

Spot gold was bid at $1 526,81 an ounce at 1343 GMT, against $1 515,70 late in New York on Tuesday, having fallen as high as $1 509,49. US gold futures for August delivery rose $15,10 at $1 527,80 an ounce.

“China has done a number of reserve requirement increases over the last several months — however, you have climbing inflation, so in real terms you are not making any money by just holding cash,” said VM Group analyst Carl Firman, commenting China’s central bank decision to increase interest rates for the third time this year.

“A lot of new middle-class Chinese have cottoned on to this, and there is a lot of demand for gold as a store of wealth under these circumstances. Their money is not earning anything, in fact you are getting negative returns now holding cash, whereas you are not getting that holding gold.”

“I think China would need to raise rates higher and higher still until we start to see some kind of tapering off of their inflation figures,” he said.

The euro suffered from China’s rates hike, pushing the dollar index to new highs: this would normally impact on gold, but this time around the assets are  moving in line.

“The stronger dollar could stall a prospective rally if there is a flight to safety… but then you will witness again what happened in 2009, when the correlation between the dollar and gold was positive,” said Firman. “That could very well manifest itself over the next couple of months.”

From a technical perspective, the precious metal is facing tough resistance after its latest break higher.

“We see resistance at $1 518 and $1 528 which represent the 50% and 61,8% of our June drop from $1 558 to $1 479,” said ScotiaMocatta in a note “We believe the market will maintain its bearish slant while the metal holds below $1 518 but will shift neutral on a close back above that level.”

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