Gold’s puzzling performance
Fawad Razaqzada February 12, 2019 5:09 AM
When you consider that the US dollar is again on the rise, stocks are firmer and government bonds are down, you would expect to see the safe-haven and buck-denominated metal struggle. Yet, it is outperforming all the major dollar pairs.
Gold’s performance is puzzling today. When you consider that the US dollar is again on the rise, stocks are firmer and government bonds are down, you would expect to see the safe-haven and buck-denominated metal struggle. Yet, it is outperforming all the major dollar pairs. The only explanation I can give here is that the metal is perhaps being supported by hopes over a resolution in US-China trade talks. A deal could boost the yuan, allowing Chinese investors to purchase more gold than would otherwise be the case. Also, with major central banks turning dovish again, this has been one of the biggest reasons why some noninterest-bearing and lower-yielding assets have found renewed support of late. But today government bonds yields have rebounded, which is what makes this whole thing rather bizarre. It could be that I am reading too much into it, but the metal decoupling from the above assets today is very interesting nonetheless. Gold’s relatively strong performance could possibly be a sign that investors are moving into safer assets. So, it could be a sign for a potential stock market correction, for example. So far this year, though, stocks have remained resilient.
The alternative explanation would be that gold investors have got this wrong. But the fact that gold has so far held above prior resistance circa $1300, this suggests that the buyers are still in control and that the selling pressure has waned further. Thus, as things stand, gold’s path of least resistance continues to be to the upside, from a short-term technical point of view. If we now see short-term resistance around $1315 break, then this could lead to further technical follow-up buying pressure towards – and possibly beyond – January’s high of $1326. However, if the $1300 support gives way, then a drop to at least $1285 could be on the cards.
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 Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.