Gold showing resilience
On Friday afternoon, gold came within two dollars of breaking back above $2,700. But it was unable to make the final heave, and it has drifted lower overnight and this morning. Despite this, gold has made impressive upside progress since the New Year, even as the US dollar has pushed higher. The Dollar Index is trading at fresh 26-month highs, just below 110.00. This comes as the US economy is outpacing all other majors. Its robust labour market, along with an uptick in inflation, is making it less likely that the Federal Reserve will be able to reduce interest rates much further this year, if at all. This increases the dollar’s appeal, particularly when the outlook across Europe, the UK and China appears so dire. While a strong dollar will often keep a lid on dollar-denominated commodities, including precious metals and, to a lesser extent, oil, this time around there are compelling reasons for gold, silver and crude oil to head higher. As far as gold is concerned, it has been under owned for many years. Yet, certain central banks, such as China’s, Russia’s and others across the Middle East, have been steadily building their reserves. While this may not be a precursor to replacing the US dollar as the world’s reserve currency, it is certainly an important diversification, and one that should be watched closely.
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