Gold on the edge as investors weigh conflicting macro factors
Fawad Razaqzada November 6, 2019 11:39 AM
At the time of writing, gold was somewhat desperately trying to cling onto key support around $1480, finding mild support thanks to the stock market rally pausing for a breather. The precious metal fell sharply on Tuesday, partly because we saw further unexpected improvement in economic data and thawing of US-China trade frictions, both helping to underpin the buck and undermine haven assets. With bond prices falling and yields on the rise, investors are evidently reducing their expectations over aggressive rate cuts from global central banks. So, gold’s weakness makes some sense.
However, while further short-term falls look somewhat more likely than it did a couple of weeks ago, the longer-term outlook remains positive for gold. A potential trade deal might not be a bad thing for gold, after all. One has to remember that China is a big consumer of the precious metal. The prospects of a trade deal therefore boosts the physical demand outlook for gold both directly, and indirectly via a stronger yuan. So, I think the longer-term outlook remains supportive if you look at it from this angle. Also, with indices breaking to fresh multi-year or record highs in the face of declining earnings growth, the risks of a stock market correction rises by each passing day. A sharp retreat in equities should help to boost the appeal of safe haven gold.
But right now, the fundamental conditions are not as supportive as they had been before, and with Tuesday’s big drop the short-term technical outlook is also looking a bit more bearish now. A potential break and hold below key support at $1480 could pave the way for a drop to that longer-term support circa $1450. The bulls meanwhile will now want to see Tuesday’s losses being erased, or a distinct reversal pattern to unfold at lower levels first, before the short-term technical outlook turns positive again.
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.