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Dubai Gold Hits 3-Month High, But What Does This Mean for Forex Traders?


Last week, the financial market took a surprising turn as the price of spot gold hit a three-month high in the burgeoning Dubai marketplace. This was an unexpected shift in sentiment occurred amid rising global uncertainty, while it was also contradictory to the bearish trend predicted for gold during 2017.

While the price of gold has slipped slightly since then, the gold outlook remains bullish while it has once again been established as a safe-haven asset class in an age of growing geopolitical volatility. This is not only indicative of the economic climate, of course, but it also a trend that will have a pronounced impact on the financial marketplace in the near-term.

The Headline Facts: How the Price of Gold Has Soared in Dubai

Even after a recent (and marginal) downturn, the price of gold remains relatively high at $1,232.26 per ounce. This followed a previous peak of $1,235.73 per ounce, as rising levels of safe-haven demand caused the price to reach its highest point since November 11th.

This trend is likely to continue indefinitely, with growing levels of global unrest and geopolitical uncertainty creating a risk-averse outlook among traders. The policies of U.S. President Donald Trump are central to this volatility, with an increased infrastructure spend and controversial foreign policy continuing to undermine economic growth and prosperity.

Trump's signature travel ban (which was recently revised and has placed a temporary restriction on residents from seven primarily-Muslim countries from entering the U.S.) has had the most pronounced impact on the demand for gold, as ongoing legal wrangling and the potential ramifications for the global marketplace has sent investors scurrying for cover.

Trump's economic policies have also caused consternation among investors, particularly with the real estate magnate thought to favour a slightly weaker dollar (in order to drive more competitive exports for this 'America-first' philosophy). Trump is also keen to force economic growth by hiking the base interest rate further, and while the Fed remains unsure it is almost certain that they will comply during their next meeting on March 15th. In fact, the Fed is expected to increase the rate by a further 0.25% at this time, creating a benchmark of 1.0% in a bid to drive higher levels of consumer spending.

The Impact on Currency: An Outlook for Forex Traders

This combination of political and macroeconomic conundrums is creating a bearish outlook among traders, particularly those who deal primarily in currency. The trend for risk-averse currency trading is also likely to continue for the near-term, regardless of whether or not the Fed decides to hike the base interest rate. In fact, the outlook for the U.S. Dollar (USD) is likely to worsen in the event that the Fed decides not to increase the rate, as investors have already tailored their strategies to account for an incremental hike.

This arguably comes at the worst time for the USD, as the currency has already begun to trade lower against the stricken pound after a disappointing data release pertaining to the American labour market. Given that the GBP/USD pairing was already expected to trade higher during the second financial quarter, further uncertainty concerning foreign policy and so-called Trumponomics have the potential to force the dollar into a restricted trading range.

This is not necessarily good news for currency traders, who have relied on the robust and consistent performance of the USD to guide their strategy in a largely depreciating marketplace. The value of the pound continues to be restricted by the spectre of Brexit, for example, with any gains made by the GBP likely to be capped for the foreseeable future. The Euro (EUR) is also mired in a narrow range at present, with three major elections scheduled for 2017 and the EU facing a potential rebellion depending on each individual result.

In short, this makes it hard for currency traders to identify profitable pairings, and may encourage them to either embrace a risk-averse approach or seek out alternative asset classes.

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