Gold prices tightening up as traders await the Fed’s next call

Gold spot and futures climbed a touch on Tuesday, with spot prices rising 0.72% and travelling between a range of between $1,493.18 and $1,508.70 while Gold climbed $4.10, or 0.3%, to settle at $1,515.70 an ounce, clawing back some of the $12, or 0.8%, lost on Monday.  

In other precious metals, September silver gained 20.8 cents, or 1.2%, to $17.148 an ounce, following a 1.1% loss a day earlier and on a spot basis, the metal added 1.60% rising from $16.85 to a higher of $17.19. The ratio between gold and silver was down -0.87%, falling from a high of 88.72 to a low of 87.669.  

Back to the Fed

Gold will continue to find a bid in a low rate environment and while geopolitics dominate the themes, although, what has been in the background are the  macro fundamentals. There is a focus on the Federal Reserve where some analysts are expecting them to pull the trigger again  by adding a 25bps cut in September. “We continue to forecast a cut in December, as well,” analysts at Standard Chartered called:

“We believe that heightened trade uncertainty, coupled with ongoing deterioration in global growth, will worry about the Committee. The extent to which global growth deterioration will hurt the domestic economy is uncertain, and there is little precedent on which the Fed can confidently rely. The last time the Fed cut rates because of an external shock was in 1998, when emerging markets, especially China, constituted a far smaller share of global GDP and contributed less to global growth.”

Gold levels:

Gold prices have morphed into a wide-based symmetrical triangle which could break either way, albeit, considering the macro and geopolitical driving forces, there is a bullish bias in general. The risks in the immediate term are a break below the 1490s and then the 1480s should the Dollar and or risk sentiment bounce back.

US economic fundamentals remain solid, for now, supported by a strong labour market and consumer spending. However, both coincident and leading indicators from the goods sector have been deteriorating. In part, this is due to the inventory build-up in Q1-2019, which we expect to spill over into H2-2019, subtracting 0.4-0.5ppt from y/y GDP. However, construction has also weakened, and business sentiment indicators have been flashing warning signals. The stronger USD, rising unit labour costs, supply-chain disruptions and weaker revenue from abroad may soon combine to squeeze corporate margins and sap hiring. Meanwhile, core inflation remains below the FOMC’s medium-term 2% objective. Against this backdrop, we believe the FOMC will ease further in H2-2019, and we expect the policy stance to remain dovish until either trade and growth concerns abate, core inflation tops 2% or wage growth tops 3.5% y/y, roughly the latest cycle’s peak