Improved risk appetite dims gold
While the majority of financial headlines across the international media continue to focus on the ongoing volatility of Bitcoin, there have been other developments keeping the markets busy as the festive season approaches.
Political risk is keeping investors on their toes, with the British pound remaining sensitive to any headlines around Brexit negotiations. US President Donald Trump also appears to be gaining ground with one of his key campaign pledges, and is making progress with his long-awaited tax reforms.
One instrument that appears to be suffering from a lack of buying interest is gold, with the yellow metal declining to its lowest level since July 23 at $1,243 on December 8, 2017.
Improved risk appetite from investors, including major US stock markets resuming the trend of making further record highs, has weakened the appeal of safe-havens, encouraging traders to take profit on an instrument that has peaked near $1,360 over the summer months.
Underlying strength in the US economic data has likely provided an additional catalyst to increase selling pressure on gold, with the United States adding a further 228,000 jobs to its economy in November. The consistent strength in US economic data is heightening the likelihood that the Federal Reserve will continue raising US interest rates higher in 2018, something that we know from the past has been negative for gold price.
As gold entered 2018 on its present downward spiral, it is going to come up for debate, although I personally think that there are uncertainties in the world that can encourage investors to seek safe-haven assets. One of those uncertainties include geopolitical tensions, and I feel that investors have now discounted the North Korea– US tensions.
Another factor that could potentially provide gold with a helping hand is whether there is market anxiety following a potential pullback in the value of Bitcoin, after the rally in the Cryptocurrency reached 1,500 per cent last month. With both CBOE Global Markets and CME Group launched Bitcoin futures in December, institutional investors will be able to take positions on both sides of the market. This means that those who believe Bitcoin is a “bubble” will be able to potentially enter selling positions, meaning that the value of Bitcoin is likely to continue being volatile over the coming weeks. In the hypothetical scenario that there was a ‘crash’ in the value of Bitcoin, this is something that might have a ripple effect on the stock markets and could encourage increased investor appetite for safe-havens — which would benefit gold.
Elsewhere, one of the most interesting currencies to monitor as 2017 concludes is the Turkish lira. The lira is attempting to recover after suffering widespread weakness towards new historic lows against a basket of different currencies, following the breakdown in diplomatic relations between Turkey and the United States. The issue with the widespread Turkish lira weakness, is going to be the detrimental impact it will likely have on investor/consumer confidence, coupled with the inflationary pressures the Turkish economy will likely face at the turn of 2018. However, there is still no real economic justification for the lira to be valued as weak as it currently is.
The economy of Turkey is actually performing reasonably well and many feel that the Turkish lira is a contender for the most undervalued emerging market currency in the world. Although the political risk element that has attracted headlines for Turkey in recent years is something that will likely still cause concern for investors, if ambitious traders are looking for an opportunity in the market to price in a rebound for a currency that, by all accounts, remains heavily oversold, the lira is one to monitor.