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  • Gold bulls taking back the baton as a reminder of risk-off themes.
  • Multiple event risks on the horizon that could catalyze the next leg higher in gold.

Gold prices have been on the rise again on Tuesday with US traders and investors coming back after the Labour Day holidays to what is a toxic-cocktail of Brexit and trade war risks. The price of the yellow metal has risen from a low of $1,521 to a high of $1,549.73 scored in recent trade following a sell-off in the Dollar.  

There has been growing pessimism over global growth as a whole and the prospects of an imported recession for the US economy. Today’s data from the US in the ISM is a key measure of what the market can use to assess the economy by, as noted by analysts at ING Bank, “has historically been one of the best lead economic  indicators  and the fact all the main components are now in contraction territory is a major cause for concern.”

The ISM manufacturing index arrived at 49.1 for August versus 51.2 in July which was the first sub-50 reading since August 2016 and is the weakest figure since January 2016. “This is a clear disappointment that will provide further fuel to the market and President Trump’s desire for further Federal Reserve interest rate cuts,” analysts at ING Bank argued.

However, gold is not bid solely on the US dollar falling by just  -0.09% in the DXY, there are greater risks at play which include both Brexit and trade wars. September was supposed to be the month where US and Sino negotiators got together but there has been little sign of any advancement here which is rattling the cages of the bears and concerning to investors – Meanwhile, Brexit is back tot he fore and also of concern.

Brexit back to the fore

The latest on the Brexit developments is that politicians who are opposed to a no-deal Brexit will attempt to seize the parliamentary schedule and pass a bill that would effectively prevent Prime Minister Boris Johnson from taking Britain out of the EU on October 31 without a deal. While this may be seen as a positive, in actualy fact, it only adds to the uncertainties – Boris Johnson, in a public statement made outside of No 10 Downing street following an emergency cabinet meeting,  suggested yesterday that he would seek an early election if the rebels voted to rule out a no-deal Brexit, and vowed that he would not ask Brussels for another extension.  

Bullish case for gold summed up  

“We  see multiple event risks on the horizon that could catalyze the next leg higher in gold as a dovish turn from central banks, along with inverted yield curves and a surging pile of negative-yielding debt serve as a great fundamental backdrop to remain bullish the yellow metal. The President’s continued criticism of the Fed, politics in Europe, and the increasingly tense situation in Hong Kong as Beijing lays the groundwork to step-in if needed, provides additional scope for gold to continue moving higher despite the stretched positioning,” analysts at TD Securities summed up.  

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