Head of Commodity Strategy
Gold remains under pressure from the stronger dollar and emerging market weakness, something that was highlighted Monday when the collapse in the Turkish lira triggered across the board gains for the dollar while sending gold through support at $1,205/oz. The market is currently transfixed by the negative impact on those EM economies with large external debt in dollars at a time where both the dollar and funding costs are rising.
Instead of providing support to gold, these geopolitical problems have instead helped send the metal even lower. Currently it is trading close to a trendline that can be drawn all the way back to 2008.
Longer-term investors trading exchange-traded funds backed by gold and hedge funds operating in the futures market have all been sellers in recent weeks. While total holdings in gold ETFs since May have dropped by 5% or 112 tons to the lowest since January, hedge funds have taken their net-short in Comex gold futures to a record short.
In the week to August 7 gold’s net-short reached a new record of 63,000 lots as funds continued to add length to the gross-short while cutting gross-longs.
The ongoing trade war between the US and China, which is showing no signs of being solved anytime soon, has helped trigger a 10% drop in the value of the Chinese yuan since April. During this time gold has fallen by 12% and as a result we have seen gold trade relatively stable against the yuan. This is unlikely to be a coincidence and while we are still searching for the exact reason for this strong correlation, some speculation has started to emerge that some traders are using gold as a proxy to short the yuan through easily available and easily shortable gold.
Technical indicators such as RSI show that the metals, both precious and industrials, have moved into oversold territory. With that, the risk of a sharp correction continues to rise.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
