Head of Commodity Strategy
Instrument: Spot: XAUUSD, Future: GCQ8 or CFD: GOLDAUG18
Price Target: ½ at $1,306/oz. and ½ TBA
Market Price: : ½ at current level around $1,273/oz and ½ on a break above $1,286/oz.
UPDATE: Gold has weakened further as the technical picture has continued to deteriorate while improved gold fundamentals such as trade tensions, a slightly weaker dollar, lower US bond yields, and a continued decline in global stocks have failed to make an impact.
The price has hit $1,258/oz which was our stop on the ½ long entered last week. The “death cross” (which occurs when the 50 DMA crosses below the 200 DMA) has received a great deal of attention and likely supported additional selling this week.
The 14-day RSI is now showing gold to be the most oversold since December 2016. The next major level of support can be found just below $1,240/oz. while potential buyers are likely to sit on the fence until we see a break back above $1,286/oz.
A trade war between the US and China looks increasingly likely. The ramp up in trade tensions continued overnight when China vowed it would retaliate after Trump threatened to impose fresh tariffs on $200bn worth of Chinese goods. The market has responded by sending the dollar and bonds higher and stocks lower. Gold remains caught up in this battle between the strong dollar versus raised geopolitical risks.
It’s our view that the higher the dollar climbs on trade frictions the more global growth could end up suffering as consequence. A trade war leaves no winners, especially not the already heavily indebted emerging market economies which are faced with lower activity, a weaker currency and rising dollar debt.
On that basis gold is likely to continue to struggle in the short term as the dollar appreciates. But with stock market volatility on the rise and bonds back in demand we see a favourable outlook for gold emerging.
Entry: One ½ at current level around $1,273/oz and the other ½ on a break above $1,286/oz
Stop: 1 1/2 ATR = $15/oz below entry (move stop higher once both entry levels have been hit)
Target: ½ at $1306/oz. and ½ TBA
Time Horizon: Short-term
Gold is looking for support from lower US 10-year real yields and a potentially stronger JPY as risk-off sentiment spreads:
The biggest challenges of being long gold are lower oil prices as this reduces inflationary pressure, a poor technical picture following the recent sell-off and a continued dollar surge. Should the US and China once again step back from the brink a relief rally across other assets may also hurt gold's prospects.
The first stop level $15/oz below entry will take it below support at $1,267/oz, the 76.4% retracement of the December to January rally. Our second entry level at $1,286/oz reflects the previous support that was broken last Friday while the first take profit is just ahead of the 200-day moving average at $1,306/oz, a level which has provided strong resistance in recent weeks. In order to isolate additional dollar appreciation XAUEUR can be considered as an alternative.
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.
