· GOLD TECHNICAL ANALYSIS
Gold prices have stalled at resistance in the 1323.40-26.30 area. A daily close above it would expose the late-February swing top at 1346.75 next. Initial support is in the 1303.70-09.12 region, with a turn back below that setting the stage to challenge rising trend line support at 1275.98.
· Gld finally broke out of its Asian session consolidation phase and spiked to near 3-1/2 month tops, around the $1335 level in the last hour.
After yesterday's two-way price action, buying interest around the precious metal picked up the pace on Wednesday in wake of firming expectations that the Fed will eventually cut interest rates in the face of escalating US-China trade tensions.
· The Fed Chair Jerome Powell, in a speech on Tuesday, hinted at the possibility of an interest rate cut and said that the central bank will do what it takes to sustain the expansion of the US economy, which was seen benefitting the non-yielding yellow metal.
Meanwhile, the US Dollar struggled near multi-week lows, just below the 97.00 handle, amid some renewed weakness in the US Treasury bond yields and remained supportive of the strong bid tone surrounding the dollar-denominated commodity.
Adding to this, the prevailing cautions mood around equity markets further underpinned the precious metal's relative safe-haven status and contributed to the ongoing positive momentum through the early European session, to the highest level since February 21.
· Moving ahead, Wednesday's US economic docket highlights the release of ADP report on private sector employment and the ISM non-manufacturing PMI, which will now be looked upon to grab some short-term trading opportunities.
· The run higher is fueled by some weakness in the dollar but also as flows are starting to move towards haven assets, in particular bonds. Global bond yields are falling today and that's feeding into gold gains as well with price now breaking above swing region resistance around the $1,326 level.
A firm break will help to open up a move back towards retesting the year's highs @ $1,346.80 and that will be the next key resistance level to watch. Essentially, gold is still riding on the back of the same reasoning that we had at the start of the week as pointed out here.
· Georgette Boele, analyst at ABN AMRO, suggests that they strongly believe that the surge in gold prices has happened because of broad dollar weakness rather than safe haven demand for gold and remain positive on the outlook for gold.
Key Quotes
“First, the decline in gold prices came to a halt above and relatively closely to the 200-day moving average, and thereafter prices bounced higher. This is a positive development from a technical point of view, and strengthens our case that gold prices will rally towards the end of this year. Our year-end target is USD 1,400 per ounce.”
“Second, the developments on the trade front have decreased the likelihood of tighter central bank policy around the globe. In fact, easier monetary policy is far more likely at this point in time. We have adjusted our base case scenario, and now expect the Fed to start cutting the Fed funds rate by 75bp by Q1 2020 (this is currently priced into financial markets). Moreover, we expect the ECB to restart QE, and other central banks to become less hawkish – postponing the start of the tightening cycle, or even cutting rates.”
“An environment of easier monetary policy is in general supportive for gold prices because the interest rate difference – between the currency and gold – declines, making gold as a non-interest paying asset more attractive.”
“Third, the US dollar is struggling to rally in the current risk-off environment. This is because financial markets fear the policy uncertainty that comes with President Trump’s increasingly erratic trade policy. So, the US dollar is likely also being punished because the US’s longer term credibility is weakening. This may not be visible in EUR/USD, because the euro has its own challenges, but it is visible versus the Japanese yen, the Swiss franc and gold prices.”
“Fourth, we expect the Chinese authorities to step up stimulus to support the economy. It is likely that.”
Reference: Reuters, FX Street
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