All commodities ended the week on a positive note except for aluminium, as the dollar weakened on optimism about the US-China trade talks. Crude oil was the top gainer, a more than 8 percent rise. In fact, from its December low, crude oil has risen more than 26 percent. Hence, sentiment in crude oil has turned bullish.
Base metals have appreciated after a dismal December even after Chinese economic data disappointed the street. Gold shone nearly 1.5 percent brighter due to the US Fed's dovish statements and an increase in investment demand in gold-backed exchange-traded-funds.
The ETF demand increased because of the persistent political risk in the US and the UK. The impasse over President Donald Trump's campaign promise to build a wall along the US-Mexico border has now led to the longest US government shutdown ever.
The dollar fell to three-month low because of optimism about the US-China trade talks that ended on a positive note on January 9. Moreover, dovish FOMC minutes pushed the greenback lower. On January 11, the Fed chair echoed the same tone in his speech as he said that the Fed had the ability to be patient regarding monetary policy and downplayed the possibility of more than two rate-hikes in 2019.
Meanwhile, the World Gold Council has bet on gold in 2019 because of rising uncertainties around the world. Gold is getting a boost from mounting speculation that the Fed may pause in raising borrowing costs, boosting the appeal of the non-interest-bearing metal.
From an economic data viewpoint, due to the US government shutdown, no major economic data was released last week. Hence, this week will be full with loads of data if the US government retreats from its partial shutdown anytime soon. However, the Trump administration's multiple meetings with the opposition has failed every time.
Hence, safe-haven buying is likely to emerge in the yellow metal. Moreover, in the last five years, gold has yielded positive returns in January. Hence, we believe this seasonal pattern will work in favour of the bulls.
The Chinese Lunar New Year is due from the first week of February. Hence, jewellery demand from China may arise. Moreover, on January 8, British Prime Minister Theresa May suffered another setback to her Brexit withdrawal deal.
Members of her own Conservative Party joined opposition Labour Party MPs in favour of a vote to curb the government's spending powers if Britain fails to secure an agreement deal regarding its exit from the European Union. Hence, we would like to stick to our view of a positive outlook on gold for this week.
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