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 Q2 2022
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.