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According to ANZ analysts, gold has regained its mojo over the past three months, with its safe-haven status coming to the fore amid an escalation in the US-China trade war.

Key Quotes

“The tension has brought with it expectations of interest rate cuts by a multitude of central banks. However, technically, gold is looking overbought, and we wouldn’t be surprised to see prices pull back in the short term.”

“The recent escalation in US-China trade tug-of-war significantly raised the stakes, with the market growing concerned about a global recession. Manufacturing activity is already weak across various regions, and yield curves are inverting. Against such a backdrop, the central banks’ policies should remain accommodative. The US Federal Reserve looks committed to act appropriately to protect the US economy against any trade-related slowdown.”

“Investor demand continues to grow strongly. ETF gold holdings rose to 2426t, with year-to-date inflows of 216t. Speculative long positions have also increased by 447t to 1096t.”

“Gold has become a crowded trade, raising the possibility of a short-term correction. On a weekly basis, it has crossed the overbought line of 70 on the Relative Strength Index (RSI).”

“Net long positions are also at their highest since September 2016. However, history shows this hasn’t been a hindrance to higher prices over the medium term. We believe the fundamentals should still be supportive enough to limit the losses in any technical-based sell-off. Ultimately we expect gold to trade higher over next 12-month.”