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  • Gold suffers on news that  China is planning to lift penalties on intellectual property.
  • Gold still an attractive hold for portfolio managers.  

Spot gold has been sinking on the day, currently down -0.32% at the time of writing having fallen from a high of $1,462.19 to a low of $1,454.12 in light of trade deal optimism and a robust greenback, (euro weakness), challenging cloud tops on the DXY.  

The price of the precious metal is getting it from both sides. Firstly, risk-on sentiment has supported stocks and US yields higher while the FX space nails the coffin down. European growth is slowing and helps to support DXY higher in the FX flows. The Federal Reserve is on hold which gives a yield advantage for the US dollar also. Meanwhile, Sino/US trade deal negotiations are a core geopolitical fundamental driver and a series of upbeat headlines have helped to lift risk appetite at the start of this week which is a negative for gold prices.  

Correlated markets pin gold prices down

Reports that China is planning to lift penalties on intellectual property violations bolstered trade optimism and saw US equities set new record highs. At the time of writing, the S&P 500 was up 0.62% and the DJIA up 0.51%. In Europe, the DAX was up 0.6% and the FTSE 100 climbed a further 0.9% despite demand for the pound.  As for Gold delivery for the December futures contract on Comex, it fell $6.70, or 0.5%, to $1,456.9/oz.

The allure of gold in a portfolio

Analysts at TD Securities explained, “loss-aversion remains a tough sell for a market that is looking forward to the potential for 2020 reflation, with a Fed that is on pause. Investors that look past the noise, however, can expect the yellow metal to offer optionality to further easing  “” (TD Securities still expects the Fed to cut rates twice more in 2020) “” while also allowing money managers to benefit from a trend of lower real rates”.

“The asymmetry in the US central bank’s reaction function suggests that while they may cut rates, they are far from hiking and are likely to allow inflation to creep higher, thereby suppressing real rates and maintaining the allure of gold in a portfolio,”   – the analysts at ANZ concluded.

Gold levels