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  • Gold elevated on soft US dollar into year-end following pood Durable Goods data.
  • 2020 looks to be a roller coaster of a year on the geopolitical front, potentially a bullish backdrop for gold.  

Gold prices are elevated into the last trading day ahead of Christmas Eve, up 0.41% on the day so far having travelled from a low of $1477.63 to a high of $1485.21. Markets are in bullish mode following a risk-on start to the week whereby sentiment for a  ‘phase-one deal’ has been reinforced by a number of headlines. Meanwhile, the US dollar is the laggard of the pack, failing to fully capitalise of end of year flows as the final piece of key data during the Christmas lull and for 2019 disappointed in a big way.  

DXY is technically bearish

The DXY index is flat at the time of writing, recovering from the worst levels of the day, 97.58, which came of the US Durable Goods Orders (MoM) for November arriving -2.0% vs an estimated 1.5% and prior 0.5%. That’s quite some margin although surveys of late have generally been signalling stalling rather than dramatic weakening in underlying trends. The US dollar, on the other hand, has been making a strong comeback, yet technically, the bulls are topping at the 61.8% Fibonacci retracement of the Nov 2019- YTD decline at a strong confluence resistance point around the 200-DMA. The dollar is also within a bearish consolidation of the rising wedge formed at the end of June which topped out a the start of October. The US administration prefers a weaker dollar and with there being a 2020 a contentious presidential election on the cards, it could be a rocky year for the bulls, which in turn should keep the yellow metal underpinned, especially should geopolitical risks combine to prevail.  

Phase-one deal in the making

On the trade deal front, President Donald Trump on Saturday (Dec 21) said the United States and China would “very shortly” sign their so-called Phase One trade pact.

“We just achieved a breakthrough on the trade deal and we will be signing it very shortly,” Trump said at a Turning Point USA event in Florida.

Additional headlines, however, were somewhat conflicting. China was reported to be unimpressed with the US interfering with China’s affairs, which likely lead to the initial sell-off in the open. However, later in the Asian session, it was announced by the finance ministry that  China will lower import tariffs on over 850 products from Jan. 1, including frozen pork and frozen avocado. It will also further lower import tariffs on some information technology products from July 1 next year, said the ministry, in a statement on its website. So, it is the usual ebbs and flows of positive vs negative headlines, and at this time of the year, traders have had just about enough them and prefer to stick to the narrative that a trade deal is on the cards for Jan 2020. However,  the two sides have irreconcilable objectives which likely means it will be back to the drawing board which markets will have no choice but to repent, equating to lower equities and safe-haven flows into gold.  

  • Gold Price Forecast 2020: XAU/USD bulls likely to remain in control

As for the outlook for 2020, gold is up 16% so far this year and is set to go higher should the prevailing risks escalate in the medium  term, while, on the other hand, for the near term, positive trade deal noise  should cap the safe-haven flows into precious metals. It will eventually all boil down to global rates and equities.

In short, the current bull market in US equities that started in March 2009 is the longest on record, as noted by Omkar Godbole, editor at FXStreet, who argued that the magnitude of the rally is looking increasingly unreal and could force investors to diversify into gold. More from his 2020 analysis, here.

Gold levels