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Gold's staying power depends on certainty that the Fed will not move towards restrictive policy next year

  • Gold is losing its safe-haven appeal and testing key trend-line support.
  • Sino/US trade talks appear to be back on and global stocks have rallied. 

Gold has found a footing above the 38.2% Fibo of late, following an increasingly dovish sounding tone from Fed Chair Powell and other FOMC members. This, in combination with trade optimism after the G20, initially sent the USD moved lower and the Chinese Yuan strengthened to the benefit of precious metals. However, on the breakdown of trade relation sentiment after Canadian authorities confirmed the arrest of Huawei Technologies’ CFO Wanzhou Meng on charges of violating the USA’s sanctions on exports to Iran, the dollar spiked and gold wobbled. 

Market sentiment is the driver, regardless of the facts. Despite speculation, it seems as though the markets got too ahead of themselves for their own good. Instead, on Tuesday, European markets got back into rally mode with stocks rallying from between 1.5%-2% in the open, boosted by upbeat economic data out of the region’s biggest economy, and positive signals on the global trade front once again, despite the mood over the arrest of Wanzhou Meng.

  • US Dollar climbs to over 1-week tops, sits comfortably above 97.00 mark

The Wall Street Journal reported that a phone call took place between  Treasury Secretary Steven Mnuchin, U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He and this news were followed up by a Tuesday morning from President Trump who said "Very productive conversations going on with China! Watch for some important announcements!" U.S. benchmark stocks tracked the stronger performance in European markets and opened sharply higher on Tuesday.

The news has given risk a big boost and that is damaging for gold prices which have started to feel the pressure from a solid dollar at the start of this week already. The price has been pressured to the rising trend support line which meets the pivot point located at 1245. 

The next major risk events ahead of the Fed come with US CPI tomorrow, (expected 0.2% m/m and 2.2% y/y), the ECB and further Brexit related headlines. 

  • Market themes of the Day: The judgment day for the Brexit deal in parliament delayed indefinitely
  • ECB Preview: The end of the asset purchasing at the time of uncertainty may reposition Euro higher

Gold levels

A break of the pivot point will open S1 located at 1240, guarding S2 at 1236 and finally, S3 located at 1231. 1238, however, should be a strong level of support where the 38.2% Fibo of the 2018 downtrend has been located. On the upside, the 50% Fibo is at 1262, just above the 200-D SMA that is found at 1256. On the way there, R2 is at 1255. On a break of this confluence, the 61.8% Fibo can be found at 1286.

"We think that this breakout has staying power, but the yellow metal may need more certainty that the Fed will not move towards restrictive policy next year before prices move towards the $1,300/oz territory,"

analysts at TD Securities argued. 

 

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