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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 66% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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8goldM

Gold challenging resistance as equities drop

Commodities 4 minutes to read
Picture of Ole Hansen
Ole Hansen

Head of Commodity Strategy

Summary:  Gold is once again challenging resistance as equities wilt amidst a breakdown of China-US trade talks.

Gold is once again challenging resistance between $1,289 and $1,292/oz, as highlighted on the chart below. The combination of weaker stocks, rising volatility and a softer dollar – especially against the Japanese yen – have triggered renewed demand. This comes as uncertainty about what happens next in the trade talks between China and the US rumbles on. 

A break above the aforementioned area of resistance could see gold challenge Fibonacci resistance at $1297 followed by $1,306/oz. Only a break above $1,316/oz would signal a renewed challenge of the February peak. 
Gold
Source: Saxo Bank
Central bank buying continues

China bought gold for a fifth consecutive month in April. The 14.9-ton increase was the largest since 2016 and it took the year-to-April total to 57.9 tons. As I said in an interview with Bloomberg yesterday:  “banks' buying is the underlying demand story which continues to develop from central banks seeking to de-dollarise their reserves [...] what is missing for gold to move higher is a pickup in paper demand through futures and ETFs. Something that will happen if stocks run into a prolonged period of profit-taking and/or the dollar stabilises”.

Paper demand the missing link

Until now, paper demand has been mostly negative with total holdings in bullion-backed ETFs having seen continued reductions this year. This is in line with the continued rise in stocks, which reduced the need for safe-haven buying and diversification. Hedge funds, who are much more price-sensitive, chased the market during this period; in the week to April 30. gold was bought to the tune of 33k lots, making it the second-biggest week of buying this year.

The move returned the position to a net-long and highlighted the continued struggle for direction. However, a break to the upside would force another round of buying from momentum and technical trading funds as they are forced to rebuild a bullish exposure to the market. 
Gold 'paper' investments
Keep an eye on volatility

As I highlighted in a tweet yesterday, it is important to keep an eye on the VIX index. The May future jumped above 17% yesterday and that resulted in more than half of the record short position (180k lots on April 30) moving into loss-making territory. With the net-short representing 40% of the total open interest of the futures contract versus 26% during the last peak, the market has been left exposed to additional short-covering if the uncertainty rises further. 
VIX

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