27 October 2016
George Soros slashed his fund’s gold position after a rally in the second quarter. Photo: Bloomberg
George Soros slashed his fund’s gold position after a rally in the second quarter. Photo: Bloomberg

Gold prices at a crossroads

The US dollar remains largely range-bound as investors are still divided over the next US rate hike.

Fed officials are hinting at a rate hike before the year is out, but the market is only discounting a 50 percent chance of rate hike up to December, as reflected by the federal funds futures market, amid the easing moves by the UK, Australia, New Zealand and Japan.

Britain’s July consumer price index rose 0.6 per cent, its highest since November 2014, according to data from the Office for National Statistics.

Producer input prices edged up 0.3 percent in July from the year before.

The inflation challenge implied by these data means the Bank of England has its work cut out for it as it tries to keep inflation under control while trying to stimulate economic growth.

The pound touched a low of US$1.2863 recently before bouncing back.

If the British currency kept breaching the technical support level at around US$1.30, we should expect another round of selloff.

Meanwhile, cooling expectations of a Fed rate hike this year have boosted gold prices.

But interestingly, after a rally in gold in the second quarter, billionaire investor George Soros sharply cut back the gold holding of his Soros Fund Management LLC, according to regulatory filings with the US Securities and Exchange Commission.

The technical chart shows gold has entered a triangular phase and may stay directionless until there is a clear breakout.

On the downside, the trough at US$1,310 seen on July 21 is a critical level.

If bullion falls below that, it could slip further to US$1,282 or even US$1,253.

Meanwhile, London silver has repeatedly tested the downside in recent sessions.

Metrics such as relative strength index point to further weakness. The next support points to watch are US$19.40 and US$19.

This article appeared in the Hong Kong Economic Journal on Aug. 16

Translation by Julie Zhu with additional reports

[Chinese version 中文版]

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Sales director, Emperor Capital Group Limited; HKEJ columnist

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