background image background image background image

Gold pounces on stock market malaise

Picture of Ole Hansen
Ole Hansen

Head of Commodity Strategy

Summary:  Gold, in a downtrend since mid-April, has found a tentative bid amid continued turbulence across global stock markets. So far, however, the fresh bid has not been strong enough to rattle some of the recent established tactical short positions. For that to happen the metal needs a runaway upside day or a period of consolidation back above the 200-day moving average, currently at $1839/oz.


Gold, in a downtrend since mid-April, has found a tentative bid amid continued turbulence across global stock markets. So far, however, the fresh bid has not been strong enough to rattle some of the recent established tactical short positions. For that to happen the metal needs a runaway upside day or a period of consolidation back above the 200-day moving average, currently at $1839/oz.

From an absolute return perspective gold’s year-to-date performance in dollars can be viewed as a disappointing, but when considering the impact of the stronger dollar and the steep losses in stocks and bonds, any diversified investor with gold is likely to be satisfied.

19olh_gold1

During the past month, gold has been suffering from the double blow of a stronger dollar and the FOMC (Federal Open Market Committee) signaling an aggressive pace of future rate hikes in order to combat inflation at the highest level in decades. Fine, if the economy does not suffer too much of a setback, thereby raising the risk of recession. What has changed during the past 48 hours has been dismal earnings news from large US retailers raising the risk of a deeper than expected economic slump. Most recently Target Corp which yesterday plunged the most since 1987’s Black Monday crash. In his comments the CEO sited persistent cost pressures and bloating inventories amid a change in consumer spending as reasons.

These developments helped deepen the global stock market rout, and today the weakness has continued, thereby supporting short covering and fresh haven buying of US bonds while the dollar has softened. All developments that has supported the mentioned bid in gold. The yield on US ten-year inflation adjusted bonds trades lower with the break below the 21-day moving average at +0.09% signaling a loss of short-term bullish momentum. 

The loss of momentum in recent weeks have seen ETF (Exchange Traded Fund) investors reduce gold holdings in all but one of the last 18 days while money managers in the latest reporting week to May 10 cut their net long in COMEX gold futures to a three-month low. Interestingly the latest reduction was primarily driven by long liquidation with no signs of appetite for naked short selling. 

We maintain a bullish outlook for gold given the need to diversify amid a troubled stock market and the increased risk of a policy FOMC policy mistakes driving yields and the dollar lower. From the chart below it is clear that gold has its work cut out, and a great deal of work is needed to mend the chart damage done during the past month. The first sign of improvement would be a break above the 200-day moving average at $1839 followed by $1868, the latter being the first level to signal loss of bearish momentum. 

19olh_gold2
Source: Saxo Group

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)
Full disclaimer (https://www.home.saxo/legal/saxoselect-disclaimer/disclaimer)

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

This website can be accessed worldwide however the information on the website is related to Saxo Bank A/S and is not specific to any entity of Saxo Bank Group. All clients will directly engage with Saxo Bank A/S and all client agreements will be entered into with Saxo Bank A/S and thus governed by Danish Law.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.