Head of Commodity Strategy, Saxo Bank Group
The prospect of an escalated trade war continues to make matters worse for emerging market bonds, stocks and currencies. The MSCI emerging market stock index is down by almost 20% since January while the MSCI EM currency index has lost 8.5% of its value since April when the focus turned to trade tensions.
While industrial metals have had a rough ride this week from the prospect of global growth and demand being negatively impacted we have seen gold continue to stabiliae. As a result of these developments the Gold-HG copper ratio touched a two-year high at 4.6 while silver at one point touched a two-decade low against gold after the gold-silver ratio reached 85.
Funds are short gold in response to a stronger dollar, rising US interest rates, and the increased need to be invested where strong liquidity can offer a certain amount of protection.
The US stock market and the dollar both tick that box and as long we do not see any contagion into the US market from the market turmoil seen elsewhere gold may struggle to find a bid strong enough to take it higher. However, a break above $1,220/oz as per the chart above is likely to attract some additional buying but whether it will be strong enough the get the short-covering wheel to accelerate remains to be seen.
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