Gold climbs on Saudi drone strike, rising early Monday on its attraction as a safe-haven asset following the drone attack on Saudi Arabian oil facilities over the weekend.
Houthi rebels battling Saudi Arabia in Yemen took credit for the strike, but the Trump administration has blamed Iran, setting the stage for a possible geopolitical standoff.
This morning, the yellow metal has shown little reaction to Empire State manufacturing survey’s weaker than expected data. The survey’s September index dropped to a reading of 2, down from August’s reading of 4.8. A reading of around 4.1 was forecast. Also noteworthy from the report was the rise in inflation pressures with the PPI up to 29.4, August’s reading was 23.2
Gold’s move to the upside came after bullion posted its third consecutive weekly loss last week as optimism about U.S.-China trade relations grew. Prices of the precious metal have fallen on weak economic data, uncertainty over the U.S.-China trade war, fears of an economic recession and heightened speculation of monetary easing from central banks around the world. The world’s two largest economies are expected to hold high-level talks next month.
The U.S. Federal Reserve, the Bank of Japan and the Bank of England are all scheduled to announce interest rate decisions this week. Cuts could brighten gold’s luster as a hedge. Currently, the CME FedWatch Tool has the probability of a Fed interest-rate cut on Wednesday at 75%, with the same percentage predicting a 25-basis-point reduction. That compares with 94.6% a week earlier. The odds of no cut are 25%.
The European Central Bank cut interest rates Thursday, going deeper into negative territory, and ECB Chief Mario Draghi pledged an indefinite amount of quantitative easing to jumpstart the euro-zone’s economy.
The December gold contract fell 0.5% Friday to settle at $1,499.50 an ounce on Comex and was down 1.1% last week. Gold has technical support at $1,485 an ounce, and a break below that level could trigger a selloff toward $1,400, according to FX Street. The first level of resistance is likely $1,520 followed by $1,560, near the 2019 high, it said. Currently, the December contract is at $1,508.40.
Adding just a 5% allocation of gold to a portfolio can improve the risk-adjusted performance of a standard portfolio of 60% stocks and 40% bonds, Investment News reported last week, citing a research report by Ryan Giannotto, director of research at GraniteShares.
And Britons are turning to gold as a hedge against Brexit, The Wall Street Journal reported Friday.
In economic news, Chinese industrial production data for August showed output grew at the weakest pace in more than 17 years. In other releases this week, investors will watch for the NY Empire State manufacturing numbers on Monday and U.S. industrial production and international capital flows data on Tuesday. The euro-zone consumer price index comes out Wednesday.
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