Gold too passive, risks deeper correction Gold too passive, risks deeper correction Gold too passive, risks deeper correction

Gold too passive, risks deeper correction

Commodities 5 minutes to read
Ole Hansen

Head of Commodity Strategy

Summary:  Gold as well as silver and platinum have seen renewed weakness following yesterday's FOMC meeting. While the Fed has promised rock-bottom rates for longer than three years, the across market reaction with lower stocks and a stronger dollar, have raised some concerns that the Fed has lost its element of surprise with a tool box looking increasingly empty. With the inflation focus taking a break, the short-term direction is likely to be dictated by movements in US megacap stocks and the dollar.


What is our trading focus?

XAUUSD - Spot gold
XAGUSD - Spot silver
XPTUSD - Spot platinum
XAUXAG - Gold-Silver ratio
IGLN:xlon - iShares Physical Gold
ISLN:xlon - iShares Physical Silver
IPLT:xlon - iShares Physical Platinum

____________________________________________________________________________________________________

Gold as well as silver and platinum have seen renewed weakness following yesterday’s FOMC meeting. This after Fed chair Powell, as expected so close to the US elections, refrained from announcing new measures to stimulate and support an economic recovery which he described as still being highly uncertain. While the Fed has promised rock-bottom rates for longer than three years, the across market reaction with lower stocks and a stronger dollar, have raised some concerns that the Fed’s tool box has started to look empty with the element of surprise no longer there.

Gold’s post-FOMC reaction has mirrored the developments seen in weaker stocks and a stronger dollar. It shows that precious metals for now instead of being a safe-haven asset, chase the alternating risk sentiment being reflected through these key markets.

While U.S. ten year real yields, a key driver for gold, continue to stabilized around -1%, the short-term market direction is likely to be dictated by stock and currency market developments. Especially a break in the Nasdaq below 11,000 and a stronger dollar against the euro below €1.17 could increase the risk of a deeper correction in gold than the one seen already down to $1900/oz.

The rising inflation theme that in recent months helped drive demand for gold and inflation protected bonds have started to fade somewhat in recent weeks. This after seeing forward inflation projections move lower after reaching a cycle high at the end of August. Countering this potential short term headwind for gold, it is our worry that the optimistic views on when a vaccine against Covid-19 will be become widely available are too optimistic. With the case count continuing to rise around the world, recently also in the U.S., the global economic recovery look set to slow over the coming months.

With these developments and the potential for a very ‘ugly’ U.S. elections period ahead, we maintain our bullish outlook for gold. In the short-term however the performance of U.S. mega-caps and the dollar hold the key to the direction. As a result we are likely to see the two month consolidation period being extended further.

Gold remains stuck in the $1900’s with local support at $1937/oz ahead of the key $1900/oz level. Three previous lower highs point to fading upside momentum with the market in need of a break above $2000/oz to neutralise it.

 

Source: Saxo Group

Turning our attention to silver we have seen little in terms of fresh input to the market with most of the recent price action being dictated by mentioned outside markets. It is currently stuck in a $26/oz to $27.50/oz range with no major changes seen in its relative value versus gold where the XAUXAG ratio for the past couple of weeks has traded in a very tight range around 72 ounces of silver to one ounce of gold.

Source: Saxo Group

Platinum has rallied strongly since the World Platinum Investment Council last week changed its 2020 outlook from a supply surplus to a deficit. Having tried for a couple of days to break a key level against gold it also got hit by profit taking following yesterday’s FOMC meeting. Trading at a discount close to 1000 dollars to gold the metal has yet to challenge the recent highs which are $1005/oz and $1040/oz. For that to happen the XAUXPT ratio probably needs to break below 2, a key area of support where platinum’s further advance has been scuppered on several occasions since May (see small insert chart).

Source: Saxo Group
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 is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo Capital Markets HK Limited 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

By clicking on certain links on this site, you are aware and agree to leave the website of Saxo Capital Markets, proceed on to the linked site managed by Saxo Group and where you will be subject to the terms of that linked site.

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

Please note that the information on this site and any product and services we offer are not targeted at investors residing in the United States and Japan, and are not intended for distribution to, or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. Please click here to view our full disclaimer.