Gold looks to the UK and Italy for support Gold looks to the UK and Italy for support Gold looks to the UK and Italy for support

Gold looks to the UK and Italy for support

Ole Hansen

Head of Commodity Strategy

Summary:  Gold took a beating last week at the hands of US rate hike expectations and unexpectedly strong data. Now, renewed dollar strength against EUR and GBP is keeping the pressure up on the yellow metal.


Gold has dropped to its lowest in a month  (-0.3%) and is now looking for support this Monday after breaking below $1,211/oz on Friday. Last week it was the stronger-than-expected US PPI coming just after the Federal Open Market Committee confirmed that further gradual rate hikes are coming that helped send the yellow metal lower. The weakness today has been driven by continued dollar strength, especially against the euro (+0.6%) as the European Commission is ready to escalate its budget battle with Italy. The dollar has also gained versus sterling (+0.8%) as pressure built on the British Prime Minister to ditch her Brexit plan or face defeat in Parliament. 

Following on from last Friday’s PPI, the market will be looking ahead to the release of October US CPI on Wednesday. The headline figure is expected to show a year-on-year rise of 2.5%, up from 2.2% in September. The US bond market has not yet bought into a rising inflation outlook with the 10-year breakeven yield having stayed close to 2.1% all year. As a result of this the equivalent 10-year real yield, currently at 1.13% and up from 0.4% at the beginning of the year, has been rising almost in line with the rise in nominal yield. Rising real yields pose a challenge to gold given the opportunity cost of holding an asset that does not pay a coupon or a dividend. 
Hedge funds reduced bearish gold bets by 18% during the week to November 6 before the mentioned price weakness ahead of the weekend. ETF investors meanwhile increased total holdings again, albeit at a much reduced rate compared with the previous four weeks. 
The political uncertainty, which is the key driver behind today’s dollar strength – note it is trading unchanged against the Japanese yen – has helped cushion gold’s drop with focus now being the area of support between $1,202/oz (50% Fibo) and $1,198/oz (trendline from the August low). 
Source: Saxo Bank
However, keep an eye on silver which after testing resistance last week once again collapsed. It is currently challenging support at $14/oz, and with silver already trading historically cheaply relative to gold, a break below is likely to be felt in gold as well. 
Source: Saxo Bank


Boulevard Plaza, Tower 1, 30th floor, office 3002
Downtown, P.O. Box 33641 Dubai, UAE

Contact Saxo

Select region

UAE
UAE

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.