Over time the two most important factors to support Gold are lower real interest rates and a weaker USD,
But with the Fed unable to deliver on the markets dovish expectations and a consequentially strong USD, the bears are back in the driver seat over the short term.
With the Fed dovish tail wind fading, economic data will take an increased focus for gold traders.
And while the door remains slightly open for a rate cut, it is still a disappointment against lofty easing aspirations. The markets have factored -100 bp into the US curve, and with the Fed delivering 25 and maybe 50, it could trigger a bearish shift in gold markets over the near term.
But at a minimum, it will test the bullish markets resolve.The resistance for gold at $1435/50 has proved to be significant thus far. But in the medium-term gold remains in a broad consolidation range with support into 1400 initially, ahead of the more critical 1380.
Of course, things can change quite dramatically in the interest rate front but given a relatively hawkish Fed to market expectations and the USD reassuming it King Dollar status; traders will turn better sellers over the short term.
I still like gold as a defensive strategy and as an alternative asset.
Gold will continue to find support from geopolitical tensions, lower for longer interest rates, trade war concerns and central bank demand, which continues to be the unwavering pillar of support.
The European Central Bank will not renew an agreement with 21 European central banks that limit gold sales. “Signatories of the 4th Central Bank Gold Agreement no longer see the need for a formal agreement as the market has developed and matured,” the European Central Bank said in a statement on Friday. The agreement expires on 26 September and includes the ECB.
Gold investors should take this as a vote of confidence. There is little threat of a widespread sell-off over the next decade so no need to extend the agreement. Gold has become much more of diversified reserve factor with half of the 24 central banks that purchased Gold last year had not been in the market.
* Any opinions expressed in this article are the author’s own
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