· Gold prices clocked some gains on Thursday against the backdrop of recession fears, with traders tracking signs of progress on the U.S.-China trade talks and global central banks for direction on interest rates.
Spot gold rose 0.3% to $1,543.86 per ounce, as of 0544 GMT, close to its over six-year peak of $1,554.56 hit on Monday.
U.S. gold futures were up 0.2% at $1,552.40 an ounce.
· Bull markets (for gold) are on hold as we wait for further news on the trade dispute, which seems to be the major driver, said Michael McCarthy, chief market strategist at CMC Markets.
“Global growth in the balance here and a resolution (in the trade conflict) would be good for growth and bad for gold,” McCarthy added.
· On the trade front, the Trump administration on Wednesday made official its extra 5% tariff on $300 billion in Chinese imports, and set collection dates of Sept. 1 and Dec. 15.
While Trump in recent days has toned down his aggressive China trade rhetoric, it has not translated to a retreat from the planned tariff hikes. It remains unclear whether U.S. and Chinese negotiators will resume in-person talks in September as previously suggested by U.S. officials.
· Adding to the uncertainty was British Prime Minister Boris Johnson’s decision to suspend parliament for more than a month before Brexit.
· Underscoring the gloomy global sentiment, yields on 30-year U.S. Treasuries and 10-year German bunds hit record lows on Wednesday.
· The U.S. Treasury yield curve remains inverted, which is commonly considered a sign of an impending recession.
· The U.S. Federal Reserve and the European Central bank are expected to cut rates next month, while many investors believe the Bank of Japan could also join the fray if market sentiment weakens further.
Gold tends to appreciate on expectations of lower interest rates, which reduce the opportunity cost of holding non-yielding bullion.
Markets are fully priced in for a quarter-point cut in interest rates by the U.S. Fed next month, and over 100 basis points of easing by the end of next year.
· Indicative of market sentiment, holdings of the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, have increased by 6.6% this month.
· Gold is biased to break a resistance at $1,546 per ounce and thrust to $1,568 before reversing the uptrend, according to Reuters technical analyst Wang Tao.
· The dollar index, which measures the greenback against a basket of six major currencies, was little changed after rising 0.2% in the previous session.
· Gold: Fresh risk-off renews buying interest around $1,540
With the latest trade/political headlines renewing risk-off, Gold takes the bids near $1,540 by the press time of early Thursday.
In a case of the trade deal with China, the US Treasury Secretary Steve Mnuchin seems uncertain about September meeting despite remaining mostly positive of the talks. Though, Agence France-Presse (AFP) released the latest updates from the group of top-tier business houses from the US that are complaining about the Trump administration’s tariff war with China.
While a lack of clarity on market direction has been pushing Gold upward, an active economic calendar and trade/political news will play their role during the rest of the day.
Technical Analysis
Investors wait for a sustained break of recent high surrounding $1,555in order to aim for $1,600 round-figure while a four-week-old rising trend-line at $1,518 offers near-term strong support.
· GOLD TECHNICAL ANALYSIS
Gold prices are digesting gains after breaking resistance at 1535.03, the August 13 high. Buyers now aim to challenge a weekly inflection level at 1563.00, though negative RSI divergence still hints that upside momentum may be cooling. A turn back below 1535.03 sees the next layer of support at 1480.00.
· A large amount of capital has flowed into gold in recent days, and fundamentals may continue to drive price momentum, this according to Phil Streible, senior market strategist of RJO Futures.
“We’ve seen an incredible move in there, we saw about 489 thousand ounces go into gold yesterday and about 1.2 million ounces go into silver ETFS. It’s the largest amount of gold holdings we’ve seen all year long if you look at the derivatives as a whole,” Streible told Kitco News.
Streible noted several fundamental factors underlying the trades.
“I do believe that we’re going to hit $1,600 [an ounce]. I think the fundamentals are quite supportive. The Fed should be pretty aggressive cutting rates. They might disappoint at the tail end of it. Globally, interest rates are being cut everywhere. The trade war, the trade war, the trade agreement negotiation, that seems to be kind of the biggest factor because you look on Friday, it really got nasty between President Trump and China and gold futures surged closing on the high,” he said.
· In a recent research note, Shyam Devani, senior technical strategist at Citigroup, said that the ratio between gold and the S&P 500 is testing a critical pivot point and a break higher could trigger a rally that pushes gold prices 25% higher. Devani’s estimate would push gold prices to nearly $2,000 an ounce.
“Equity markets continue to look vulnerable, especially given the deeper inversion of the U.S. yield curve,” the Citigroup analyst said. “Sometimes the ratio between asset classes is too hot. Sometimes too cold. But sometimes the chart signals ‘Just right’.”
· Elsewhere, spot silver rose 0.7% to $18.46 per ounce, close to yesterday’s high of $18.50 which was its highest since April 2017.
Platinum rose 1% to $908.87, while palladium was up 0.5% to $1,475.65 per ounce.
Reference: Kitco, Reuters, FX Street, Daily FX
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