Analysts at TD Securities explained that considering the Fed and US dollar-driven roller coaster gold has been riding over the past twelve months and the recent drop into the high $1,240s, investors would not be blamed for believing that it has nowhere to go but down.
Key Quotes:
“Gold formed a death cross pattern last Friday, and it continued to drop this week amid the bearish technical signals. Gold bugs have little to cheer given what they see in the options market and based on how strongly the greenback is performing, particularly against emerging market currencies. Indeed, since traders have been ignoring the fact that US rates have been dropping in response to growing angst surrounding a global trade war, signs of weaker US data and the loss of risk appetite and have rather been responding to the FX markets and technicals, it is quite possible that we have not seen the bottom yet.”
“If price action following the previous death cross back in late-November 2016 is to be a guide, the $1,230s or even lower are real possibilities. However, considering that positioning is very much skewed toward the shorts and given that we expect the USD to start weakening, while the US 2s-10s spread is nearing inversion, US 10 year yields remain sub 3% along with trade uncertainties dampening global optimism, gold should bounce sharply of the bottom with the yellow metals averaging $1,375 in the last three months of 2019.”
“It is also likely that many gold traders may be walking back their somewhat lofty Fed rate hike expectations, which along with angst in the emerging economies, should provide support to their currencies, which in our opinion have been instrumental in placing a pall on gold.”
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