Gold Rallies On Weak USD


The yellow metal enjoyed another positive session this week. Gold extended the shallow recovery from last week as the US Dollar continued its sell-off. The greenback was shunted lower this week in response to the latest inflation data which came in weaker than expected.

Both headline and core inflation were lower than was expected year on year in February, despite posting a small monthly gain. The readings come on the back of the February jobs report last week. This showed wage growth rising to a cycle high of 3.4%. The result suggested that higher labor costs are yet to feed into higher consumer prices.

One reason for this has been greater productivity over the last year. This productivity has allowed businesses to absorb increased labor costs into wider profit margins rather than needing to pass them on to the consumer.

The USD sell off continued over the week. This was despite better than expected durable goods orders in January, which rose 0.4% vs. an expected contraction of 0.4%. Part of the reason for a softer US Dollar this week has also been the improved risk sentiment.

The market continues to trade favorably on optimism over ongoing US/China trade talks. News that both sides were engaged in phone meetings this week to establish the next steps in negotiations has encouraged traders. This is leading to firmer equity prices, which have also tempered the upside moves in gold.

Moreover, news that Brexit will now likely be delayed has also kept risk sentiment supported. In the UK, parliament voted in favor of seeking an extension to the current March 29th Brexit deadline. If successful in seeking an extension, Brexit will be postponed for the time being.

Uncertainty leading up the deadline has kept gold prices firmly supported over recent months. However, with it now looking like the deadline will be extended, a great deal of this uncertainty has been alleviated. And this, of course, is leading to better risk appetite.

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