GOLD PRICES fell on Monday morning in London while the US Dollar strengthened against the Yen after a smooth meeting between US President Donald Trump and Japanese Prime Minister Shinzo Abe last weekend, writes Steffen Grosshauser at BullionVault.
The Dollar hit a 2-week high against the Japanese Yen, although no currency issues were discussed during the 2-day weekend summit, according to a Japanese government spokesperson. Trump previously accused Japan of taking advantage of US security aid and stealing American jobs.
Stock markets, bonds yields and the greenback were buoyed after Trump's remark on a "phenomenal" tax reform plan for US companies raised hopes of tax cuts and a shift away from trade protectionism. This put gold under pressure before it recovered slightly last Friday.
The precious metal slipped further from last week's close of $1233 to $1227 per ounce on Monday.
Silver, meanwhile, briefly touched $18 per ounce - the highest level since 11 November which was reached in the aftermath of last year's presidential election - but then returned towards Friday's finish of $17.95.
"Quietness on the protectionism front and a rekindling of the Trump-flation trade is taking the wind out of gold's safe-haven sails," said Jeffrey Halley, senior market analyst at currency data provider Oanda.
"Is Trump-flation back with a vengeance," asked Dutch bank ING's strategist Viraj Patel. "Probably investors will want to wait but it does seem that all of the cards for another bull run for the dollar may be falling back into place."
"Trump has just taken a positive approach to tax reforms and infrastructure spending," said Koji Fukaya, president at FPG Securities. "It remains to be seen if this has any impact on Yellen, as the Trump administration's lack of policy clarity seemed like a factor that made the Fed hesitant to raise rates."
US Fed's chief Janet Yellen will be testifying in Congress on Tuesday and Wednesday, with investors looking for hints about more interest rate hikes than the two that are already priced in by many analysts.
"[But gold] prices are likely to recover again, even though there may be slight corrections," said Hareesh V, research head at brokerage Geofin Comtrade Ltd.
"Global uncertainty from the US, Europe and on the [North] Korean front will drive global prices high again as prices couldn't break the December-low," he added.
A government official in Pyongyang confirmed to have successfully launched a ballistic missile on Sunday which would have violated existing UN resolutions to stop the country's ballistic missile and nuclear weapons program.
Gold prices are on the rise so far this year and are around 10% above the 10-month low reached in mid-December.
"A correction was overdue after gold almost managed to recoup half of what had been lost during the [sell-off between July and December]," said commodity manager Ole Hansen of Saxo Bank. "Underlying demand has improved with hedge funds showing signs of returning."
The number of bullish gold futures on the US Comex market held by professional speculators including managed money plus other reportables grew to the highest in two months in the week to 7 February, according to the latest US Commodity Futures Trading Commission (CFTC) data. The large speculators' net long positions in Comex silver futures and options followed and increased for the 6th week in a row.
Holdings of the world's largest gold-backed ETF, the SPDR Gold Trust (NYSEArca:GLD), further expanded, not having seen any net outflows since 26 January.
While in a Bloomberg survey of 26 analysts and traders conducted at the end of last week, two thirds were bullish towards gold in 2017, analysts were more divided over the yellow metal’s outlook this year.
"Our year-end call for gold remains a bearish one, with much of the fall underpinned by our expectations for the Federal Open Market Committee to hike rates two more times later this year," said Singapore-listed bank OCBC' analyst Barnabas Gan.
"Gold, in our view, remains dominantly driven by dollar movement, and the rate hike should rally the dollar and drag gold to our year-end outlook of $1100 per ounce."