Gold tests $2,000 as focus turns to FOMC Gold tests $2,000 as focus turns to FOMC Gold tests $2,000 as focus turns to FOMC

Gold tests $2,000 as focus turns to FOMC

Ole Hansen

Head of Commodity Strategy

Summary:  Gold briefly traded above $2000 at the start of the European trading session, after the market responded with caution instead of relief to the high drama that unfolded in Switzerland over the weekend. The short-term direction of precious metals will, besides further developments on the banking and liquidity front, be dictated by Wednesday’s FOMC meeting, the outcome of which is turning out to be most unpredictable in years


Today's Saxo Market Call podcast
Global Market Quick Take: Europe


 

Gold briefly traded above $2000 at the start of the European trading session, after the market responded with caution instead of relief to the high drama that unfolded in Switzerland over the weekend. The Swiss National bank trying to avoid contagion from a worsening liquidity crisis at Credit Suisse, arranged what can best be described as a shotgun wedding that sees UBS take over Credit Suisse with several liquidities guarantees and a massive eyebrow-raising wipe-out of Credit Suisse’s Tier1 debt. 

The fact that shareholders got spared and Common Equity Tier 1 (CET1) being rated above Additional Tier 1 capital (AT1) has put a $275 billion bond market in focus, potentially sending this funding market for banks into a tailspin. “The Swiss have killed this key corner of funding for lenders” a UK bank CEO told Bloomberg, and it is this focus that instead of supporting the European market opening, has kept in a nervous state about what may happen next. Adding to the confusion but also reducing some of the stress about the AT1 market was a statement from European regulators reiterating that CET1 will take losses before AT1 debt

Source: Saxo

The statement helped reduce some of the liquidity-driven worries and after hitting a fresh one-year high at $2010 gold has since retraced lower to around $1980. Gold priced in other currencies raced higher as well with XAUAUD hitting a record while XAUEUR came within 1% of reaching a new high. Gold and silver ended up 6.5% and 10% last week, and together with Bitcoin they are currently being seen as safe havens and a gauge for the underlying market risk sentiment.

Heading into the latest crisis, precious metals were under owned by traders and investors who had been heavy sellers during the February correction. ETF holdings in gold jumped the most in a year last week but at 2871 tons it remains almost 450 tons below the 2022 peak while speculators in futures cut their net long positions by 78% during a five-week period to March 7. 

The short-term direction of precious metals will, besides further developments on the banking and liquidity front, be dictated by Wednesday’s FOMC meeting, the outcome of which is turning out to be the most unpredictable in years. In less than two weeks, the market has gone from pricing four rate hikes to zero and with the swap market pricing in a cut of around 130 basis point during the next twelve months. Any further escalations before then could even trigger a surprise cut, an outcome the very front end of the yield curve is pricing with three-month money currently trading 70 basis points richer than two-years, down from 90 basis point earlier in the session.

 

We maintain a bullish outlook for gold, especially if the FOMC, driven by the current banking and liquidity crisis, is forced to change its focus away from fighting inflation to maintaining stability. Peak rates have on three previous occasions during the past 20 years triggered a prolonged period of gold strength and given the current situation a repeat cannot be ruled out. The current level of uncertainty, however, has increased volatility, and in the short term, the combination of Fridays near 40-dollar rally and today’s rejection above $2000 may trigger some profit taking, but in our opinion not a change in direction. 

Short-term Gold seems overbought, and a correction if gathering pace could see it target $1931, the 0.382 Fibo retracement of the latest run up since March 8. Overall, gold is in an uptrend short- and medium-term and could test all-time highs around $2,074 

Source: Saxo

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article
Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, 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. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such 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.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

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

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.