Gold rangebound with short-term risk skewed to downside
Head of Commodity Strategy
Summary: Gold remains stuck in a 30-dollar range with investment and safe-haven demand slowing. This as the prospect for a growth stabilizing phase one trade deal continues to rumble. We maintain our bullish 2020 outlook while also seeing a short-term risk of a deeper correction.
Gold remains stuck in a 30-dollar range within a wider 80 dollar down channel from the September peak. Investment and safe-haven metals led by gold are currently struggling to find a gear as the prospect for a growth stabilizing phase one trade deal continues to rumble.
The market has taken note of the big drop in China’s gold imports in October to 34.9 tons from 61.7 tons in September. That’s the lowest figure in data going back to January 2017 and it comes at a time where Indian demand is also showing signs of weakness. Several reasons for the slowdown, such as the economic slowdown, changing demographics and in India an improved banking system has been mentioned. However, at this stage we believe that potential buyers are balking at entering the market with prices at the highest level since early 2013.
With physical demand slowing it remains up to central banks and “paper” investors to provide the support needed for prices to move higher. We believe that central bank buying is likely to continue at a steady pace with some even eying a potential return of European Central Banks to the buy side. Despite the current price weakness holdings in Exchange-traded Funds backed by bullion has risen for the past five days.
Most importantly however are the decisions being taken by real and leveraged fund managers over the coming weeks and months. Some have already booked profit in response to the ongoing rally in U.S. stocks and the bond reversal. We maintain the view that the upside potential remains but that end of year profit taking leaves the market exposed to a potential deeper correction than the one already witnessed.
The outlook for gold remains in our opinion constructive above $1380/oz with the prospect for further upside emerging into 2020. This belief is based on the following assumptions:
- The Federal Reserve has lost control and will cut rates sooner and faster than expected;
- The dollar is potentially on its final leg of strength;
- A prolonged US-China trade war raising inflationary risks;
- Central bank demand to remain strong for various reasons, one being de-dollarization;
- Robust demand for bullion-backed ETF’s.
As per the chart below gold is currently challenging support at $1448/oz with a break raising the risk of a deeper correction towards $1415/oz, the 50% retracement of the June to September rally. Momentum buyers have scaled back exposure and are likely to sit on the fence until the market breaks above the recent peaks, either $1479/oz or even $1516/oz.
Quarterly Outlook Q1 2022
Quarterly Outlook Q1 2022: Fuelling the Energy Crisis
- The green transformation is fuelling the energy crisis. Is it time to base our energy future on reality not fantasy?
Energy crisis could turn energy stocks into secular winnerWith long-term expected returns for the global energy sector close to 10%, we look at 40 stocks that could be set to cash in.
Commodities supported by greenflation and tight supplyThe commodity sector recorded its best year since 2000 in 2021. Will the good times will keep rolling in 2022? Ole Hansen thinks so.
The bond bear market will not spare anyoneInvestors will need to prepare for the pain of a bond bear market in 2022. But are there opportunities out there, too?
Mean reversion for big 2021 moves and lots of volatilityDon't expect the Japanese yen or Chinese renminbi to stay at their overstretched valuations for long. Get the FX Outlook now.
The future in energy-intensive proof-of-work looks dimIn the midst of a global energy crisis, electricity-guzzling Bitcoin and Ethereum are set to feel the heat from politicians and investors.
Australian equities poised to benefit from the energy crisisThere may be an energy crisis, but that's fuelling a charge in the ASX. FInd out which stocks could be burning hot this quarter.
The EU’s unwise energy policyThe EU's energy crisis is one of the main drivers of inflation. Is there any relief around the corner, or is the situation critical?