Gold drops as stocks selling pause for breath

Markets are a little calmer today, with stocks on the rebound and safe haven assets retreating. Gold, which failed find any meaningful support from the escalation in US-China trade spat, was lower again.

Markets are a little calmer today, with stocks on the rebound and safe haven assets retreating. Gold, which failed find any meaningful support from the escalation in US-China trade spat, was lower again. Unless it stages a surprise rally in these last two days of May, it will close lower for the fourth consecutive month. Meanwhile in FX, both the USD/JPY and USD/CHF – pairs sensitive to risk appetite – were on the rise. In fact, this marks the fourth consecutive day that the USD/CHF is climbing (and the third that gold is declining), further boosting our suspicion about the markets being in a full-blown risk-off mode. Gold’s inability to rise meaningfully in recent weeks goes to show how bearish sentiment is towards the metal right now. Despite raised geopolitical risks concerning the US, China and Iran, and not to mention the slump in bond yields, the bulls were nowhere to be seen. Investors are concerned that physical demand for gold and base metals from China and other emerging market (EM) economies would be hit because of recent falls in EM currencies. However, that being said, the markets remain on the edge and any further escalation in the trade wars could see the return of risk aversion quickly. For now at least, the markets are having a breather.

Investors eye US GDP

The US dollar – and by extension, gold – could move sharply in one or the other direction later should the US growth figure deviates from expectations by a meaningful margin. After the initial estimate of 3.2%, analysts expect first quarter GDP to have been revised slightly lower to 3.1% on an annualised format (that is, quarterly change x4). If it turns out that the world’s largest economy performed better than that then the dollar could extend its gains further, undermining gold. Conversely, a poor showing could derail the buck rally and underpin gold – although for a full-on reversal it would probably require a very poor GDP print.

Could gold drop to a new 2019 low?

If the metal does go lower, as we think it might, then the first objective would be the liquidity below this year’s earlier low at $1266. Below that we have a couple of retracement levels to watch, with the mid-point of the range from the August low coming in at $1253/4. Meanwhile short-term resistances to watch include $1280, $1285 and $1293, levels which were previously support. We would only turn bullish again on gold should it rise back above that $1300 hurdle and stay above it, or print a bullish reversal at lower levels first.

Source: TradingView and

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account