(Kitco News) – This week’s gold gains have been a bit too much for this analyst’s comfort, who says a reversal is in order as the Fed is bound to raise rates one more time this year in what already is a risk-on environment.

“Despite the relatively stronger yellow metal, we think that gold prices may be a little too rich for our comfort,” OCBC analyst Barnabas Gan said in the Weekly Commodities Outlook.

Gan sees gold prices averaging $1,200 by year-end, with gains limited by market expectations of another rate hike this year.

“We still expect the US Federal Reserve to hike its benchmark rate by another 25 basis points and initiate its balance sheet reduction before the year is up,” Gan wrote. “The buoyant global risk-on appetite owing to the strengthening equity indices in the US and Asia, as well as the low VIX level (which touched near record low since 1993 in mid-July), the resumption of yield-chasing behavior should eventually weigh safe haven assets down.

Gold prices posted positive gains this week after nearly hitting $1,280 level and touching a fresh six-week high. On Friday, December Comex gold fell after data revealed that the U.S. economy added 209,000 new jobs in July, appeasing the U.S. monetary policy hawks. The yellow metal was last seen trading at $1,263.70, 0.84% down on the day.

Gan believes that the latest gold rally has been driven primarily by a weak U.S. dollar index, which tumbled to a 13-month low earlier this week.

OCBC Chart
“Given that risk appetite remains buoyant as a majority of economic prints from US, Asia and Europe in the past week have surprised on the upside, the rally in gold prices is chiefly due to dollar fluctuations in the last week rather than a flight to safety,” he wrote.

Yet, despite a conservative forecast on gold, Gan doesn’t rule out further U.S. dollar weakness. “We continue to expect USD vulnerability to persist as other central banks potentially continue to lean against the US Fed,” he added.

In his outlook, Gan also cited lower global gold demand in Q2 2017 as a negative sign, which was revealed by the World Gold Council’s report released on Thursday.

Global gold demand fell 10% in Q2, led mainly by slowing exchange-traded fund inflows, WGC said in its Gold Demand Trends report. But the gold-focused organization remained optimistic, noting that if ETFs are taken out of the equation, gold demand shows healthy signs in other sectors.

The weak ETF figures can’t be taken too seriously, WGC said, noting that quarterly numbers are “skewed” by the really strong inflows going back to 2016.

“During last year’s Q2, gold-backed ETF demand was the fourth largest on record, in part fueled by market uncertainty around the U.K. referendum on EU membership. This has skewed comparisons to what is happening this year in Q2,” Juan Carlos Artigas, WGC’s director of investment research, told Kitco News.

By Anna Golubova
For Kitco News

Another lottery is making headlines, this time the Mega Millions $323 million jackpot, which will be drawn Friday at 11p.m. EDT.

“The tenth largest jackpot in the history of Mega Millions will be up for grabs on Friday, August 4, after no ticket matched all six numbers drawn Tuesday night,” the official lottery website said. “With the jackpot roll, Friday’s estimated jackpot is $323 million ($199 million cash).”

So, the $199 million cash prize is up for grabs and at current gold prices, that would amount to about 158,000 ounces – or about five Liberty Bells worth of gold.

But, after taxes, the winner will be walking away with a significantly lower amount.

According to USAMega.com, the $199 million cash prize will be subject to a 25% federal tax, or $50 million. That’s not to mention the state tax. The website showed that a New York state winner would be subject to the highest state tax, landing at an additional $17.6 million (or 8.82%).

Putting it simply, after taxes, the winner will be walking away with roughly $131.4 million – or 105,000 ounces worth of gold (or roughly three Liberty Bells).

“Last summer’s $536 million jackpot, won July 8, 2016, in Indiana, was the third largest Mega Millions jackpot in history and the most ever awarded to a single winner. The second highest was $648 million on December 17, 2013, with winners in California and Georgia. The record jackpot was $656 million on March 30, 2012, a prize that was split by three winners, one each in Illinois, Kansas and Maryland,” the website wrote.

What would you do with your lottery win?

(Kitco News) – Gold tends to follow four correlated markets and right now, these drivers look to be limiting the yellow metal’s advance, say analysts from ANG Traders.

In a recent report, the analysts compared gold to the U.S. dollar index (DXY), inflation data, treasury yields and the USD/JPY currency pair to make their assessment.

“Gold is a follower, not a leader. Gold goes where the four much larger markets tell it to,” they wrote.

For one, the current correlation between gold and the U.S. dollar index would suggest a lower metal price.

“There are short-lived periods during which the relationship spikes toward the positive which subsequently result in lower gold prices,” they said. “We are in one of these situations at the moment. Gold can continue to rise from here, but this gives us reason to question gold’s upside potential.”

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However, they admitted that the outlook’s “Achilles’ heel” lies at the 92 level on the DXY. “If the dollar cannot hold the 92 level, and gold breaks $1,310, then gold will be in a bull market.”

Gold prices have pushed higher, nearly hitting a two-month high this week. At the same time, the DXY is trying to bounce back from the 13-month low it hit mid-week. December Comex gold futures last traded at $1,275.50 an ounce while the DXY last stood at 92.73.

As for the second driver, the analysts noted that at the moment, gold would not be helped by any moves in inflation, whether up or down.

“The way we see it, if inflation starts to rise, the Fed will raise rates faster than the market is predicting, which will cool inflation, raise the dollar, and put pressure on gold,” they said. “If inflation drops, TIP [inflation-adjusted treasuries exchange-traded fund] will drop and put pressure on gold. Neither scenario is bullish for gold in the medium-term.”

Looking at treasury yields, the analysts said the two-year rate, which is most susceptible to upward moves when the Federal Reserve normalizes rates, has the highest negative correlation with gold prices right now.

“Even though the perceived speed at which the Fed is expected to normalize interest rates has slowed down, the bias is still up and this should limit gold’s upside,” they said.

The U.S. two-year bond yield currently lies at 1.335%, down 2.4 basis points on the day.

The final driver – the USD/JPY – has a “very strong” negative correlation to gold prices, the analysts said, adding that the current price action in the major currency cross rate would suggest downside for the metal.

“The currency pair is in an uptrend as long as it does not break support at the Fibonacci 50% retrace (108). As long as the 108 level holds, gold’s upside will be limited,” they said.

The USD/JPY last stood at around 110.131, down 0.51% on the day.

By Sarah Benali