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Gold soars to highest level in 15 months amid dollar, equity sell-off

Published 04/29/2016, 01:00 PM
Updated 04/29/2016, 01:08 PM
Gold surged by more than $25 an ounce on Friday to close above $1,290 an ounce

Investing.com -- Gold surged to its highest level since early-2015 as investors sought shelter in the safe-haven asset, amid a considerable sell-off on global equity markets and downbeat U.S. consumer spending data which sent the dollar spiraling to nine-month lows.

On the Comex division of the New York Mercantile Exchange, gold for June delivery traded in a broad range between $1,267.00 and $1,298.95 an ounce before settling at $1,293.15, up $26.75 or 2.11% on the session. At session-highs, gold tested the $1,300 threshold, a level it last cleared on January, 22, 2015. With the massive surge, gold closed April with its fifth straight winning session, ending the month up by more than $50 an ounce. More broadly, the precious metal has soared approximately 22% since the start of the year and is on pace for one of its strongest first halves in decades.

Gold likely gained support at $1,063.20, the low from January 4 and was met with resistance at $1,322.10, the high from August 8, 2014.

Gold continued its ascent in overnight trading after markets in China recoiled in response to sharp declines late on Thursday afternoon on Wall Street. Also on Friday, the People's Bank of China (PBOC) jolted markets by fixing the yuan 0.56% higher against the dollar, its strongest one-day move since 2005 when it decoupled with the dollar. The move came in the wake of two closely-watched central bank meetings earlier this week when the Federal Reserve and the Bank of Japan both stood pat by leaving their benchmark interest rates unchanged. It also sent shockwaves throughout euro zone equity markets, as the Euro Stoxx 600, the Germany Dax and France's CAC Index all closed down by more than 2%.

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Shortly thereafter, the dollar resumed its recent slide following the release of soft economic data in the U.S. On Friday morning, the Commerce Department said its Personal Consumption Expenditures (PCE) Price Index in March rose by 0.8% on an annual basis, down slightly from February's annual gains of 1.0%. The Core PCE Index, meanwhile, increased by 1.6%, also lower compared with the previous month's level of 1.7%. Core PCE inflation, which strips out volatile food and energy prices, is the Fed's preferred gauge for inflation. The dollar then hit session-lows after the University of Michigan said consumer sentiment in April fell 0.7 to 89.0, dropping to a seven-month low. Analysts expected to see gains of 0.7 to 90.4.

While core inflation surged to its highest annual level since 2012 in January, it has still remained below the Fed's 2% objective for every month over the last three years. Hawkish members of the Fed have sent some indications they could support an interest rate hike in June if they receive signals that inflation is firming over the next two months. Any rate hikes by the Fed this year are viewed as bearish for gold, which struggles to compete with high-yield bearing assets in rising rate environments.

In addition, oil prices also retreated from 2016-yearly highs after a Reuters' survey reported near-record supply from OPEC in April. The energy-driven sell-off dragged down the major indices, as the Dow Jones Industrial Average and the S&P 500 Composite index erased all of their monthly gains.

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The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell more than 0.60% to an intraday low of 92.98, its lowest level since last July. EUR/USD jumped more than 0.85% to 1.1496, its highest level since mid-October, amid stronger than expected GDP data in the euro zone. USD/JPY, meanwhile, fell to an 18-month low at 106.68, extending losses from the previous session when it suffered its worst one-day loss in seven years. Major fluctuations in the global foreign exchange market spur demand in gold, as risk-averse currency traders pile into the safe-haven asset due to heightened volatility.

Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.

Silver for May delivery jumped 0.262 or 1.44% to $17.825 an ounce.

Copper for May delivery rose by 0.050 or 2.22% to 2.281 a pound.

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