26 October 2016
Gold prices have risen as the dollar was pushed lower amid dovish comments by the US central bank. Photo: Bloomberg
Gold prices have risen as the dollar was pushed lower amid dovish comments by the US central bank. Photo: Bloomberg

Gold may edge up further on safe-haven demand

London gold price rose to a three-week high of US$1,260 per ounce on Tuesday, as the US dollar continues to hover at an 8-month low after the Fed signaled a cautious stance on interest rates.

Fed chairwoman Janet Yellen’s dovish comments last month have led to the markets scaling back expectations for new rate hikes by the central bank.

As a result, the dollar has been in a defensive mode, fueling a rise in demand for gold.

Some disappointing economic data also boosted safe-haven demand for the precious metal.

Technical analysis shows gold was in a downtrend since late March. However, the yellow metal managed to reverse the trend, and even moved past the 25-day moving average, with a nearly US$20 spurt on Monday.

The metal is likely to edge up further to US$1,268 to US$1,274 per ounce, as long as it is able to stay above the 25-day moving average of US$1,238. 

Meanwhile, silver soared 4 percent and posted the biggest rally in six months on Monday. On Tuesday, the metal moved further to US$16.05 an ounce, close to the high of US$16.13 seen on March 18. The price is likely to rise further, to US$16.5 to US$17.1, in the future.


In the meantime, US dollar has weakened against major currencies. The dollar index tumbled to 93.75 on Monday, the lowest in more than seven months. The euro surged to a six-month high of 1.1464 against the greenback on Tuesday.

The dollar index has lost nearly 3 percent since Yellen made her dovish remarks last week.

The euro is expected to stabilize above the level of 1.1375 set on Feb. 11, and may rise further to 1.15, a level that it failed to reach last October. The unit has solid support at 1.126 on the downside.

Also, Canadian dollar has gathered momentum as oil price have moved back above US$40 a barrel. US dollar has dropped to 1.2847 against the Canadian unit on Tuesday, even lower than previous trough of 1.2853 on March 31.

It remains to be seen whether the greenback may slip further to 1.2829, a low set on October 15 last year. If Bank of Canada sends a positive message at a meeting this week, the Canadian dollar may gain further strength.

Sterling has continued to edge up against the dollar and even moved past the 1.43 level on Tuesday. UK’s consumer price index rose to 0.5 percent in March, the biggest rally since December 2014. But it remains below the Bank of England’s 2% target.

Economists are not expecting the Bank of England to raise interest rates before early next year, given the sluggish global economic growth and volatile equity market.

Technical chart shows that the sterling may experience huge resistance at 1.442 against the dollar after moving above 1.4 last week. The British unit may gather further momentum if it manages to break over that level.

This article appeared in the Hong Kong Economic Journal on April 13.

Translation by Julie Zhu

[Chinese version 中文版]

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Sales director, Emperor Capital Group Limited; HKEJ columnist

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