• Add

Why gold prices need to consolidate

Saxo Bank A/S

The recent, steep rally in gold prices has brought the yellow metal right up to hard resistance between $1,350 and $1,380/oz. Is the current combination of trade war and slowing macro enough to push gold through this stubborn band?
Two weeks of steep gains in gold have left the yellow metal in need of consolidation, not least considering that the price has once again returned to the hitherto impenetrable area of resistance between $1,350 and $1380/oz.

Weaker stocks and lower bond yields over the past few months were not enough to shake gold out of its established range. What changed was the sudden acceleration in the market expectations for US rate cuts. This followed a batch of weak economic data from major economies and signs that the US-China trade war was moving towards a new Cold War in tech. During the past two weeks, the market has doubled its rate cut expectations for the next 12 months from 0.5% to 1%.

This was the change that finally saw gold break higher and the question now is whether the renewed momentum is enough to carry gold higher. The is particularly relevant considering the Federal Open Market Committee led by chair Powell, at least for now, is not signaling a willingness to adopt the recent aggressive change in market expectations.

Yesterday in a speech at the Fed’s Chicago conference, Powell said the Fed was “closely monitoring” impact of trade developments and that it will “act as appropriate”.

On that basis and in order to maintain the current upside momentum in gold, market developments from here need to support the 1% gap between the current Fed Funds rate and the expected rate in 12 months’ time shown below. In the short term, this highlights the correction risk should economic data such as Friday’s US job report surprise to the strong side.

We maintain the view that global growth momentum is slowing and likely to worsen further before renewed policy panic from global central banks will help to stabilise the outlook. On that basis, we believe that gold, following a period of consolidation, could eventually challenge resistance with a break signaling a potential $100 extension to the upside towards $1,480/oz, the 50% correction of the 2011-15 sell-off.

Silver’s recent rally following the breakout from its downward sloping wedge has so far met resistance at $15/oz. In a recent update, we highlighted the potential for silver to outperform gold due to the risk of short-covering from funds holding a near record net-short in COMEX silver. On that basis we maintain a focus on the XAUXAG ratio which, following three successive attempts to break 90 (ounces of silver to one ounce of gold), is now challenging support at 89.25.

The Saxo Bank 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. This content is not intended to and does not change or expand on the execution-only service. 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 Bank 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 Bank 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 Bank 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 Bank 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 Bank 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/legal/disclaimer/saxo-disclaimer)

Saxo Bank A/S Review

Source: https://ad.doubleclick.net/ddm/clk/438167485;241178126;n
!"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|} !"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|}