Further upside in gold prices likely: Khoon Goh, ANZ

Normally when the dollar is strong, gold prices will be weaker but in this environment, central banks around the world are easing and everyone wants a weaker dollar, says Khoon Goh, Head of Asia Research, ANZ. Excerpts from an interview with ETNOW.

What explains this selloff in emerging market currencies in particular?
Khoon Goh: There are a couple of drivers. One is obviously the ongoing concerns about the negative impact on growth, particularly in Asia from the US-China trade war. We have seen the PMI and various other data coming up showing weakening activity. More importantly, falling inflation in some economies in Asia suggests further easing from central banks in the region. There is an ongoing pressure on the Yuan, which is quite a key driver for Asian currencies.

The dollar index has climbed to a two-year high. That is adding to the pressure on the currency. But other than that, we have seen the US stocks and bond yields slumping quite significantly. The manufacturing data has slowed down, trade tensions have worsened. How bad can it get?
A key question for markets at this point in time is the trade war escalation. We never thought we would reach this stage. Earlier, we all thought that the trade deal was a done thing and here we are with more tariffs on all Chinese imports into the US. Could it escalate further? Given the way both sides have been going, it is certainly possible that things could escalate further. That is a key reason why markets remain on edge in terms of how it might impact.


The impact on sentiment is already quite clear in terms of the economic data. Even in the US we are starting to see signs of that starting to flow through. While the Fed is expected to cut rates, we will probably end up cutting more than what we initially expected. In fact, they are not the only ones doing that. ECB is probably going to go big in terms of stimulus. We have many other central banks cutting rates. The US economy at this stage still looks the best amongst worsening economies which is why the dollar is strengthening.

Where do you think currencies are headed? Every country wants its currency to remain weak so that they can export more. Somewhere the strength will move, right?
Yes, currencies are relative and everyone can have a weaker currency. On some particular accounts, every country has to bear the burden of it. At this point, it is just based on pure deduction that the US dollar is ending up being strong.

Of course, that is not something that President Trump wants. He has been complaining a lot. At this point in time, he has tried to pressure the Fed to cut rates more aggressively in order to try and drive down the dollar. If that does not work, there is a possibility that we might actually see the US intervening in the Fx markets in order to drive down the dollar.

Now that is not my base case. I hope it does not come to that, but we cannot rule out the possibility of that happening at some point and that is another reason why gold prices are continuing to strengthen. The correlation between gold and the dollar has broken down clearly for this reason. Normally when the dollar is strong, gold prices will be weaker but in this environment, central banks around the world are easing and everyone wants a weaker dollar. Gold prices are reflecting concerns about fear of currency debasement. There is only further upside for gold in the environment that we are in at the present.