- Gold’s choppiness is a sign of huge uncertainty, as traditional support and resistances are cleared with ease.
- Heightened risks between Washington and Tehran taking their toll on markets.
Anywhere you look, be it oil, gold, yields and the dollar, and global stocks, we are seeing choppiness – U.S. stock benchmarks stalled as investors dialled back enthusiasm following the pause of tensions between China and the U.S. over the weekend, and instead, the focus is on the threatened fresh tariffs on European goods and Iran which are supporting gold.
Gold rallied to $1,416 the high on Tuesday, reversing the risk-on play from the results of the meetings that took place on the sidelines of the G20 between Xi and Trump who agreed on a few key issues that inspired a ceasefire in the trade war spat. Gold was heading into the close +2.23% as the price rallied from the lows of $1,383.10.
There are wide rallies and falls taking place in the yellow metal as there is little liquidity nor many convincing foundations from which investors can feel confident in walking upon all the while geopolitical uncertainty dominates the global financial and commodity markets. The US Dollar has been on a rough ride of late as investors consider what a new cycle of easing from the Federal Reserve would have in store for the Dollar, tilting their hats to lower interest rates.
Safe haven attraction of the yellow metal is reeling in idle capital
Coupled with tensions between the U.S. and various of its global nation trading partners, along with heightened risks between Washington and Tehran, the safe haven attraction of the yellow metal is reeling in idle capital. Not to mention, it is not unusual to see two-way business in gold following key G20 meetings, for they seem to throw even more mud in the eyes of observers who are trying to unravel the tangled mess of the state of geopolitical affairs – Gold can also remain supported on the slower global growth outlook and the lower for longer interest rate narrative.
Iran announced, and the IEAE confirmed, it had exceeded the 300kg uranium-enriching limit set in the 2015 nuclear deal. “While Tehran can still step back from this, they are demanding Europe act on circumventing US sanctions on it forthwith to do so. That action will almost certainly trigger a sharp US reaction,” analysts at Rabobank argued, and indeed, which was drawing a warning from US President Donald Trump that Tehran was “playing with fire”.
Gold to find a bid on a rate cut from the Fed
From here, all eyes will be on U.S. economic data in the lead up to the Federal Reserve interest rate decision and that will include this week’s Nonfarm Payrolls on Friday. While the trade-war ceasefire may have dialled down some hopes of a Fed cut, the outlook, indeed, remains as clear as mud. “Last week Federal Reserve Chair Jerome Powell repeated his comment “an ounce of prevention is worth more than a pound of cure” so we look for them to go with a July rate cut of 25bp to be followed up with a 25bp move in September. The market is pricing in three rate cuts this year with a further 25bp cut in early 2020,” analysts at ING argued.
“The uncertainty caused by global trade tensions is weighing on US sentiment and activity, but despite this major headwind to growth the jobs market remains robust. Indeed, outside of manufacturing the US economy is holding fairly up well with firms clearly still looking to recruit workers and while continuing to complain of skills shortages. This suggests we should expect pay growth to grind higher, which will boost real incomes and keep consumer confidence firm,” analysts at ING Bank said, balancing out their dovish bias, to some extent.
Gold levels
From a technical standpoint, prices are blowing out traditional support and resistances on any given day. The outlook is indeed mixed and liquidity is scarce. However, the 1430s were a prior resistance and the downside can target the 13 July 16 highs around the 38.2% retracement need to give. This is located at 1375. Below there, the 20-D moving average and then the 50% retracement of the April swing lows to late June swing highs around 1350. In the near term, 1396 where the 50 and 20-hourly moving averages meet could be a supporting area.
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