Gold is higher in U.S. trading, buoyed by heightened risk aversion associated with the Saudi corruption crackdown. With the President in Asia, and North Korea at the top of his agenda, that is a potential source of impending geopolitical headlines (or tweets) as well.
The yellow metal jumped more than 1% intraday. Meanwhile silver was up more than 2%, trading comfortably back above $17.
The broader implications of the Saudi crackdown are unknown at this point, but the uncertainty has also pushed oil prices to a two-year high. Rising energy prices are big contributor to inflation, for which gold is the classic hedge.
The Fed prefers to focus on core PCE, which excludes “volatile” food and energy prices. However, if energy prices continue to rise for an extended period, they eventually will exert upward pressure on core goods and services.
The dollar index extended to new 15-week highs in overseas trading, but backed off those highs on risk aversion related yen buying. USD-JPY had reached an 8-month high at 114.70 in overseas trading after BoJ governor Kuroda reaffirmed that there was still some distance to achieving the 2% inflation target. While easier BoJ policy is indeed expected to prevail for some time to come, gains above 114.00 could not be sustained.
Gold needs to reclaim $1300 to ease near-term pressure on the downside. Last week’s high at 1284.15 is seen as an important short-term barrier.