Gold Market Winning The Currency War - Analysts
(Kitco News)- Rhetoric over a potential globalcurrency war continues to heat up, prompting renewed interest in gold on theback of a weaker U.S. dollar.
Markets continue to react anddigest comments made by U.S. Treasury Secretary Steven Mnuchin at the WorldEconomic Forum in Davos, Switzerland. On Wednesday, Mnuchin said that a weakerU.S. dollar has been “good” for the U.S. economy, reversing a decades-oldpolicy supporting a strong U.S. dollar.
U.S. President Donald Trump hassupported the idea of a weaker U.S. dollar as it can potentially boosts thenation’s exports since products are less expensive in other currencies.
In a report Thursday, commodityanalysts at Commerzbank equated the comments to the start of a currency war.Jasper Lawler, head of research at London Capital Group, agreed that it lookslike the latest comments from the Trump administration are the first shots in aglobal currency war.
Lawler said that he expects tosee the U.S. dollar to continue to trend lower through 2018, which will benefitthe gold market. The U.S. dollar Index is currently trading at three-year lowsat 88.59 points. At the same time, gold prices are trading near a 1.5-year highat $1,359.10 an ounce.
“2018 has so far seen arelentless sell-off in the dollar and with a distinct lack of any obviouscatalysts on the horizon that could change the fortunes of the dollar in thenear term, the outlook for the greenback doesn’t point to an improvement anytime soon,” he said.
He added that the Europeabdicated to the U.S. Thursday as European Central Bank President Mario Draghisaid that the central bank wouldn’t compete in a currency war, which pushed theeuro to its highest level since December 2014.
“We will not target our exchangerate for accommodative purposes,” Draghi said Thursday.
Draghi said that Mnuchin’scomments don’t just have implications in foreign-exchange markets but questions“the status of international relations.”
While Europe appears to be losingthe currency war, Lawler said that there are other global players to keep aneye on.
“China could be the foe to watch;USDCNH just hit 6.3 - a potential line in the sand for the PBOC [People’s Bankof China],” he said.
Lukman Otunuga, research analystat FXTM, said in an email response to Kitco News that it might be a little tooearly to declare the start of a currency war, even if the risks have risen.
He added that he remains bearishon the U.S. dollar as markets continue to digest Mnuchin’s comments.
“The dollar is likely to remaindepressed moving forward, as anxious investors ponder over the possibility of apotential currency war scenario. The dollar index remains heavily bearish onthe daily charts with 88.00 in sight,” he said. “[Gold] remains firmly bullishon the daily charts with further upside on the cards amid a vulnerable USDollar.”
Draghi isn’t the only global official to showconcerns. In Davos, the managing director of the International Monetary Fund ChristineLagarde said that with so much going on in the globaleconomy, “it’s not time to have any currency war.”
By Neils ChristensenFor Kitco News
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