|01 August, 2019

A less dovish Fed has put gold bulls on the defensive

For the past 15 years, Stephen Innes has specialised in electronic pricing and trading of G10 spot Asian EM FX/Commodities and Indices as head of trading Asia for an online FX and CFD broker. He managed market exposure and electronic market-making engines in NY4 and TY3. He has participated in numerous white paper studies to prove the efficiency of exclusive order routing and the use of fewer liquidity providers to generate more efficient price streams and execution metrics. He has more than 25 years of experience trading both voice and electronic markets with top tier financial institutions. With deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets, he is regularly called upon by leading TV, radio and print publications to offer views on the financial markets.

Website: https://vanguardmarkets.com/

With the Fed dovish tail wind fading, economic data will take an increased focus for gold traders.

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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© Opinion 2019

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