Gold finds relief as yields drop
Fawad Razaqzada November 14, 2019 12:02 PM
At $1470, the price of gold was up $25 this morning from the multi-month low it hit on Monday, before it eased back slightly.
Gold has risen over the past couple of days and a bit. At $1470, the price of gold was up $25 this morning from the multi-month low it hit on Monday, before it eased back slightly. The metal has risen because of two main reasons. First, safe-haven government bonds have resumed higher, pushing yields lower. This has helped to underpin low and noninterest-bearing assets such as the Swiss franc, Japanese yen and gold. Secondly, equity markets in the US seem to have stalled for the time being after repeatedly hitting new record highs. So, what’s the common denominator behind all this and can the gains last?
Fading optimism over an imminent phase one US-China trade deal
It appears like investors have been dialling back their exposure to risky assets ever since Donald Trump delivered his trade speech a couple of days ago. When talking about tariffs over Chinese goods, Trump was unable to provide the assurances many were looking for. The US president also disappointed speculation that he was going to provide an exact date for when the two sides will sign phase one of the trade accord. What’s more, reports emerged yesterday that the US-China trade talks have hit a “snag” over the exact amount of agricultural purchases.
Supportive central bank monetary policy stance
Aside from the ongoing US-China trade situation, gold is also supported by historically-low interest rates around the world. While some central banks have indicated a pause in their cutting cycles, no major bank is in a rush to tighten their belts. Indeed, in his testimony to Congress, Fed Chairman Jay Powell reiterated his view that monetary policy remains appropriate, even if the US economy is “the greatest,” according to Trump. With interest rates so low and QE having been re-started in by the ECB and Fed, even if the latter says otherwise, bond yields aren’t going to rise materially any time soon.
Gold defends key support – for now
Source: Trading View and FOREX.com.
On Monday, we reported the possibility for gold to bounce back as it had dropped to the technically-important $1450 support area, in what we thought was — and still think is — a supportive fundamental environment for the precious metal. On this occasion, our prediction turned out to be correct, although it remains to be seen whether the gains can be maintained this time around. The metal has been able to rise over the last couple of days, reaching a high so far of $1470 today. The bulls now need to reclaim a few former support levels such as $1480, $1495 and ideally $1515 before the technical outlook improves markedly. But first thing is first: they need to hold today’s breakout above short-term resistance at $1467ish.
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.