- Gold firms up on trade war/currency risks as Dollar sinks.
- Dollar falls as US yields crumble and US data deteriorates.
Gold has been in demand and extended its Friday’s rally, moving to a high of $1,469.70 following heightened tensions n the global stage between the US and China taking the spotlight away from the Federal Reserve for the time being. However, markets are increasing their bets that the Federal Reserve will cut interest rates again at the next meeting which has been weighing on the Dollar and has enabled the yellow metal to break into fresh bullish territories.
As for futures, after a 2.7% gain on last week’s business, for December delivery, the contract on Comex climbed $21.80, or 1.5%, to $1,479.60 an ounce following a settled on Friday at $1,457.50 an ounce which was the best closing level for a most-active contract finish since May 9, 2013.
Overnight, China’s yuan dropped to the lowest level in more than a decade after the People’s Bank of China fixed USD/CNY above 6.90 after President Donald Trump announced additional tariffs on Chinese goods – China pledged retaliation and there are presumptions that the talk of China banning or taxing US imports of agricultural products. This sent USD/CNY to breach into the 7 handle which sparked a risk-off rally.
“The PBOC’s acceptance of USD/CNY above 7.00 has un-nerved investors further,” analysts at ING Bank explained. “Expect the safe-haven JPY and CHF to remain in demand and pro-cyclical currencies to stay under pressure. Only some surprise conciliatory wording on trade or the Fed surprising with more to offer in terms of easing can reverse this defensive risk environment.”
All eyes on the Fed
Markets are looking for a deterioration in US labour market as well as today’s services data for confirmation that the Fed will start signalling that they are willing to do more than insurance cuts – An escalation of trade tensions should also do it.
Indeed, on that notion, US yields are sharply lower, with 10-year Treasuries down 5.80% at the time of writing. Global equities are in a sea of red as well. All the ducks are in a line on the fundamental front, but the technical backdrop is also strongly bullish.
Gold levels
The bulls are well in control based on fundamentals and have their eyes on the 127.2% Fibo target up at $1,560 while trading above the 20-day moving average and the 78.60% retracement of the recent ranges. The July swing highs of 1453.95 are a stone throw away at this juncture. Meanwhile, on a reversion, a 23.6% retracement to the 1435 level comes into play. 1421 marks the confluence of the 20, 50 and 200 daily moving averages
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