Market News & Analysis
Gold finds relief as yields drop
Fawad Razaqzada November 14, 2019 8:02 PM
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 City Index.
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.But as fundamentally bullish as we might be on gold, there is always the risk that this may turn out to be just be a technical oversold rebound, which could fade. So, we have to remain objective and open-minded until there is concentrate technical evidence that the metal has formed a low. Indeed, there is a real possibility that $1480, a key former support level, could turn into resistance upon re-test. This is the level that the bears must defend if they are to maintain control. Lose this and we could be talking about a new multi-year high soon. But if the potential retest of $1480 holds as resistance and/or gold were to go on and break $1450 key support on a daily closing basis first, then the technical bias would remain bearish.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.
Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.