Spot Gold Up after 'Margin Calls' as Investors Await Trump's Spending Plan and Inflation Data

SPOT GOLD bounced back on Monday morning in London as the US Dollar declined after last week's rally while investors wait for US President Trump's spending plan and inflation data, writes Steffen Grosshauser at BullionVault.

Gold Prices started the week by rallying from $1316 to $1319 per ounce after their second consecutive weekly decline, while the greenback weakened against its major counterparts.

Markets were looking at President Trump's infrastructure plan and the US consumer price data due this Wednesday for signs on inflation and the likelihood of further interest rate hikes. Concerns over rising inflation and the second shutdown-mode of the US government within three weeks were blamed for the global equity plunge last week.

Asian and European stocks rose higher this morning, with the pan-European Stoxx 600, the UK's FTSE and Germany's Dax all rising more than 1%. But traders remained nervous following the highest volatility in equities since 2015 which wiped off $1 trillion in market capitalisation. The Cboe Volatility Index jumped three-fold during the market turbulences.

Crude oil, meanwhile, rebounded after its biggest weekly decline in two years.

President Trump is expected to unveil his long-awaited $200 billion infrastructure spending plan today - including the funds to construct a wall along the border with Mexico. Although the plan is meant to boost US economic growth, his opponents criticise that his budget proposal will drop his party's goal to balance the budget in the next 10 years.

"The story is and will be about US monetary policy and dollar direction," said Swiss private bank Julius Baer's analyst Carsten Menke. "US growth is more solid, wages are rising and the worry is the Fed will be forced into more rate hikes than currently expected."

"The uptick in [gold] prices today is not so much safe-haven buying, but more so potential short covering behaviour by market watchers," said Singapore-listed bank OCBC's analyst Barnabas Gan. "It's just common sense for some portfolio managers to exhibit some short-covering behaviour especially after the sell-off we saw last week."

"People position long gold ahead of a stock market correction, and not necessarily buying gold after a stock market correction," said online broker Blue Line Future's President Bill Baruch. "And because of that, after a correction, people have to rebalance their portfolios; assets come out of gold in order to meet margin calls in stocks."

Although last week's volatility in global stock markets did not reflect in rising gold prices, Vertical Research partner Mike Dudas on CNBC's "Futures Now" predicts gold's return to its status as a safe haven as "volatility returns and erratic moves become more commonplace".

"Give it a little bit of time. We've just come off a tumultuous last four or five days in the equity markets and everything's getting re-based. [...] As things settle down and we get much more volatility in the marketplace, I think gold is going to find a bid," he added, forecasting an upside target of $1355 and a year-end price of $1400.

However, spot gold could hit resistance at $1325 and $1330 per ounce before dropping back to its 8 February low at $1306, reckons Reuters technical analyst Wang Tao.

In other metals, silver slightly rose from last week's close at $16.37 to $16.42 on Monday, whereas platinum rose 0.7% just to drop below Friday's close at $965 and palladium traded sideways around $985 after falling to a 3-month low last week.

Hedge funds and other large speculative investors decreased their net-long position in all precious metals the day after global stock markets plunged and the Dow experiencing its biggest point drop in history.

The net-long position in Comex gold was cut down by almost 11% in the week to 6 February - the first drop in eight weeks, according to data published by the US Commodity Futures Trading Commission (CFTC) on Friday.

The non-commercial speculator positions on Comex silver also fell, bringing the overall level to the lowest in six weeks.

Holdings for the world's largest gold-backed ETF, the SPDR Gold Trust (NYSEArca:GLD), were reduced to 820 tonnes, the lowest volume since the end of August.