Gold struggles with two of three main engines sputtering
Head of Commodity Strategy
Summary: Gold prices may be supported by rising bond prices and US rate cut expectations, but equities and USD need to fall in line as well for gold to rally.
Palladium, down 6% on the day and 15% since March 21, has run into a reality check following the technical break below $1,500 yesterday. The $780 rally since last August on very tight fundamentals had increasingly been attracting momentum buyers looking for the rally to extend further. When bubbles emerge, so does the risk of a violent correction, especially when liquidity is as dismal as it is in palladium.
The real challenge to gold, however, has not been palladium but the 2.2% drop in platinum following what looked like a promising start to the day when it came close to challenging key resistance at $875/oz.
Gold continues to exhibit signs of investor apathy as the price drifts lower towards $1,300/oz. The lack of a bullish tailwind following last week’s uber-dovish Federal Open Market Committee statement and the subsequent drop in bond yields are short-term concerns. The circumstance highlights how gold currently needs all of itsthree main engines for support in order to attempt another run to the upside.
While falling bond yields and an 80% probability of a US rate cut before year-end is supportive, the other two engines, stocks and the dollar, have both been sputtering. Stable stocks reduce the demand for alternative or safe-haven assets while the dollar has continued to recover from its post-FOMC sell-off. Growth concerns remain a key focus and one that if it deteriorates could reduce the appeal for stocks while lending a hand to gold.
With the uptrend from early March and the 50-day moving average both broken, the risk of a deeper correction has emerged. Using Fibonacci extension methods, the first level of support can be found at $1,300/oz followed by $1,291/oz and the important $1,283/oz level. The depth of the correction is likely to be determined by the movements of the dollar and stocks.
Latest Market Insights
Quarterly Outlook Q3 2022: The Runaway Train
- Central banks' attempts to kill inflation is a paradigm shift, which could end in a deep recession.
Tangible assets and profitable growth are the winnersWith US equities officially in a bear market, the big question is where and when is the bottom in the current drawdown?
Understanding the lack of investment appetite among oil majorsThe everything rally seen in recent quarters has become more uneven, as its strength is driven by commodities in short supply.
The pressure is on as the wind leaves the sailsWith cryptocurrencies in sharp decline, are we entering a crypto winter or is the bear market a healthy clean-up of the crypto space?
Why the Fed can never catch up and what turns the US dollar lower?Many other central banks are set to eventually outpace the Fed in hiking rates, taking their real interest rates to levels higher than the Fed will achieve.
Bank of Japan: Swimming against the tideThe Japanese economy has gone from the age of deflation to rapidly rising prices in no time, leaving the Bank of Japan in a pickle.
Green transformation detour and bear market hibernationWith the impending risk of global econonomic derailment, we share the five things investors need to consider in this new half year.
Crisis redux for the eurozone?Whether there's going to be a recession in Europe or not, the path towards a stable economy will be agonizing.
Technical Outlook: Gold, Oil and a remarkable multi-decade perspective on EquitiesThe Nasdaq bubble pattern, USDJPY resistance, crude oil uptrend losing steam and the technical outlook for USD.
China: the train of new development paradigm left the station two years agoChina is transiting to a new development paradigm, as they are hit by deteriorating terms of trade, a slower global economy and an uncertain future while continuing attempts to contain the pandemic.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)