Gold has struggled to live up to its title as a 'safe haven' for investors, despite heightened global trade tensions weighing heavily on sentiment and eroding risk appetite.
One would have expected gold to shine in times of extreme market uncertainty and volatility. However, we have witnessed the complete opposite with prices shedding roughly 8.5 percent this year. The firmly bearish price action witnessed in recent months continues to highlight how gold’s prospects remain pegged to the dollar’s performance.
The turmoil sweeping across emerging markets will play a significant role in gold’s trajectory in the coming weeks. While a suffocating sense of uncertainty may fuel risk aversion and accelerate the flight to safety, this could offer little-to-no support for gold. It is worth noting that emerging markets are the biggest consumers of physical gold, and with their currencies currently taking a beating, their purchasing power decreases. A fall in purchasing power is naturally very bad news for gold and is likely to compound the metal’s woes.
Gold’s short-to medium-term outlook remains influenced by the dollar’s performance, rate hike speculation and global trade developments. With the Federal Reserve expected to raise interest rates this month and possibly in December, zero-yielding gold is destined for further weakness with $1,185 and $1,160 acting as key points of interest.
In regards to the longer-term outlook, this will depend on escalating US-China trade tensions. If trade tensions hit a dangerous tipping point with a full-blown trade war becoming reality, extreme risk aversion may become a dominant theme. Such a scenario could revive appetite for gold, consequently sending prices towards $1,260 and $1,300, respectively.
Disclaimer: This written/visual material is comprised of personal opinions and ideas. The content should not be construed as containing any type of investment advice and/or a solicitation for any transactions. It does not imply an obligation to purchase investment services, nor does it guarantee or predict future performance. FXTM, its affiliates, agents, directors, officers or employees do not guarantee the accuracy, validity, timeliness or completeness of any information or data made available and assume no liability for any loss arising from any investment based on the same.
Risk Warning: There is a high level of risk involved with trading leveraged products such as forex and CFDs. You should not risk more than you can afford to lose, it is possible that you may lose more than your initial investment. You should not trade unless you fully understand the true extent of your exposure to the risk of loss. When trading, you must always take into consideration your level of experience. If the risks involved seem unclear to you, please seek independent financial advice.
The FXTM brand provides international brokerage services and gives access to the global currency markets, offering trading in forex, precious metals, Share CFDs, ETF CFDs, and CFDs on Commodity Futures. Trading is available via the MT4 and MT5 platforms with spreads starting from just 1.3 on Standard trading accounts and from 0.1 on ECN trading accounts. Bespoke trading support and services are provided based on each client’s needs and ambitions - from novices, to experienced traders and institutional investors. ForexTime Limited is regulated by the Cyprus Securities and Exchange Commission (CySEC), with licence number 185/12 and licensed by the SA FSB with FSP number 46614. Forextime UK Limited is licensed with the UK FCA, number 777911. FT Global Limited is regulated by the International Financial Services Commission (IFSC) with license numbers IFSC/60/345/TS and IFSC/60/345/APM.
Any opinions expressed here are the author’s own.
Disclaimer: This article is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Read our full disclaimer policy here.
© Opinion 2018