Gold rangebound with short-term risk skewed to downside Gold rangebound with short-term risk skewed to downside Gold rangebound with short-term risk skewed to downside

Gold rangebound with short-term risk skewed to downside

Ole Hansen

Head of Commodity Strategy

Summary:  Gold remains stuck in a 30-dollar range with investment and safe-haven demand slowing. This as the prospect for a growth stabilizing phase one trade deal continues to rumble. We maintain our bullish 2020 outlook while also seeing a short-term risk of a deeper correction.


Gold remains stuck in a 30-dollar range within a wider 80 dollar down channel from the September peak. Investment and safe-haven metals led by gold are currently struggling to find a gear as the prospect for a growth stabilizing phase one trade deal continues to rumble.

The market has taken note of the big drop in China’s gold imports in October to 34.9 tons from 61.7 tons in September. That’s the lowest figure in data going back to January 2017 and it comes at a time where Indian demand is also showing signs of weakness. Several reasons for the slowdown, such as the economic slowdown, changing demographics and in India an improved banking system has been mentioned. However, at this stage we believe that potential buyers are balking at entering the market with prices at the highest level since early 2013.

With physical demand slowing it remains up to central banks and “paper” investors to provide the support needed for prices to move higher. We believe that central bank buying is likely to continue at a steady pace with some even eying a potential return of European Central Banks to the buy side. Despite the current price weakness holdings in Exchange-traded Funds backed by bullion has risen for the past five days.   

Most importantly however are the decisions being taken by real and leveraged fund managers over the coming weeks and months. Some have already booked profit in response to the ongoing rally in U.S. stocks and the bond reversal. We maintain the view that the upside potential remains but that end of year profit taking leaves the market exposed to a potential deeper correction than the one already witnessed.  

The outlook for gold remains in our opinion constructive above $1380/oz with the prospect for further upside emerging into 2020. This belief is based on the following assumptions:

  • The Federal Reserve has lost control and will cut rates sooner and faster than expected;
  • The dollar is potentially on its final leg of strength;
  • A prolonged US-China trade war raising inflationary risks;
  • Central bank demand to remain strong for various reasons, one being de-dollarization;
  • Robust demand for bullion-backed ETF’s.

As per the chart below gold is currently challenging support at $1448/oz with a break raising the risk of a deeper correction towards $1415/oz, the 50% retracement of the June to September rally. Momentum buyers have scaled back exposure and are likely to sit on the fence until the market breaks above the recent peaks, either $1479/oz or even $1516/oz.  

Source: Saxo Bank
Disclaimer

The Saxo Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.