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Gold bulls set on the Jan highs at $1,611

  • Gold prices are turning bullish again following a dovish tone at the Fed.
  • Eyes on US data – the GDP wasn't as good as the headline shows it to be.

At a current price of $1,582, gold bulls have found their mojo towards the end of the week. However, prices are still yet to match the highs accomplished on Monday ($,1588.17). There is plenty of leg work to do until prices come in to contact with the start of the year's highs in the sixteen-hundreds where on the 8th Jan, the highest level seen since March 2013 were scored at $1,611. In today's session, gold prices have travelled between a low of $1,572.47 and $1,585.23. 

Gold to take up the slack

Gold has taken up the slack in other areas of global financial and commodity market performances for investors also seeking to park idle capital in times of uncertainty. since May of 2019, in the depths of the trade wars between the US and China, gold has risen from a low of $1,269 to the aforementioned highs, in a 27% climb with very few technical arguments for downside interruptions to the demand for the safe-haven asset. during the same period, the US dollar has maintained a relatively stable sideways trajectory, but should there be a downside shift, gold will surely benefit and upside moves could be exponential. 

A dovish tilt from the Fed

Yesterday, the Federal Reserve left rates on hold. However, there was a dovish tilt to the event whereby the Fed Charman, Jerome Powell, as if to warn markets, that he is uncomfortable with consistently low inflation running below target and would even allow inflation to run hot to combat against times of persistently low inflation if need be.

That has opened the door for further rate cuts following the three cuts made last year in what were termed to be insurance cuts against a possible recession and a low inflationary environment. The US dollar has subsequently started to catch up with 10-Year yields falling to fresh multi-week lows, the lowest levels since October of last year. If this is a trend that will continue, precious metals, that will include silver and platinum, are surely going to be a major beneficiary. It will not take much in a deterioration of US data or signs of global headwinds for the Fed to make their move. 

US GDP not so rosy

On the surface, advance estimates by the Bureau of Economic Analysis of Q4 US Gross Domestic Produce, (GDP), growth look good. But analysts at Nodera, who are digging deeper into the details, argue that "one finds things that are not as rosy as suggested by the headline growth of 2.1% annualized."

Key quotes

  • "Much of the boost to Q4 real GDP came courtesy of sinking imports, the latter collapsing almost 9% annualized, the worst since the 2009 recession. That explains why inventories subtracted more than 1% from growth in the quarter."
  • "The trade war with China also wreaked havoc not just on exports and imports but also on business investment, the latter dragging down growth for a third consecutive quarter."
  • "The GDP deflator on a year-on-year basis was just 1.6% in Q4, the lowest in three years."
  • "For 2019 as a whole, U.S. GDP growth printed 2.3%, six tenths lower than the prior year, although that should not be surprising amid fading impacts of the 2018 tax cuts on consumption and business investment."
  • "Looking at 2020 growth prospects, a slow start to the year is likely considering the continuation of manufacturing woes and possible disruption of economic activity brought by pandemic fears (e.g. travel and tourism)."

On a more positive note, the analysts explained that "GDP growth should pick up afterwards as related fears abate and production responds to underlying demand from consumers ─ which remain in good shape thanks to a healthy household balance sheet and a relatively high savings rate of 7.7% ─ and from stock rebuilding after the 2019Q4 inventory drawdown. We continue to expect U.S. real GDP growth of roughly 1.9% for 2020."

CTA selling will be short-lived

Indeed, with the coronavirus mentioned, worries surrounding trade still front of mind, and repo support continuing for the foreseeable future, the bias remains towards easing as inflation is too low," analysts at TD Securities explained.

"However, with that said, CTAs are moderately lightening their silver positions as range-bound markets sapped juice from the positive momentum signals, but we are not expecting a material sell-off. Instead, our ChartVision signal, which combines some 75 technical indicators across momentum and mean reversion strategies, continues to point toward a positive outlook for silver, with the breadth of momentum signals pointing long, which could suggest this CTA selling will be short-lived."

Gold levels

 

 

 

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