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Gold Price Eyes Monthly High as RSI Continues to Track Upward Trend

Gold Price Eyes Monthly High as RSI Continues to Track Upward Trend

GOLD PRICE TALKING POINTS

The price of gold extends the advance from the previous week even though the US and France settle on a trade truce, and the precious metal may continue to exhibit a bullish behavior as the Relative Strength Index (RSI) tracks the upward trend from December.

GOLD PRICE EYES MONTHLY HIGH AS RSI CONTINUES TO TRACK UPWARD TREND

The price of gold retraces the decline from the monthly high ($1611) despite the narrowing threat of a global trade war, and the weakening outlook for the world economy may keep the precious metal afloat as the International Monetary Fund (IMF) trims its growth forecast for 2020.

The IMF warns that downside risks “remain prominent” amid the ongoing shift in US trade policy, with the agency going onto say that “the 2019 global growth estimate and 2020 projection would have been 0.5 percentage point lower in each year without monetary stimulus.”

It remains to be seen if the Federal Reserve will continue to insulate the US economy as French President Emmanuel Macron pledges to work with the Trump administration “on a good agreement to avoid tariff escalation,” and the development may keep the Federal Open Market Committee (FOMC) on the sidelines as “participants regarded the current stance of monetary policy as likely to remain appropriate for a time.”

In fact, Fed Fund futures reflect a greater than 80% probability the FOMC will keep the benchmark interest rate in the current threshold of 1.50% to 1.75% on January 29, and the FOMC may largely endorse a wait-and-see approach for monetary policy as “a number of participants observed that the domestic economy was showing resilience in the face of headwinds from global developments.”

However, the FOMC may come under pressure to implement lower interest rates as the Trump administration remains reluctant to rollback tariffs, and Chairman Jerome Powell and Co. may end up adjusting the forward guidance when Fed officials update the Summary of Economic (SEP) at the next quarterly meeting in March amid the weakening outlook for the world economy.

In turn, the weakening outlook for global growth paired with speculation for lower interest may keep gold prices afloat as market participants look for an alternative to fiat-currencies.

With that said, the broader outlook for the price of gold remains constructive, with the reaction to the former-resistance zone around $1447 (38.2% expansion) to $1457 (100% expansion) helping to rule out the threat of a Head-and-Shoulders formation as the region acts as support.

GOLD PRICE DAILY CHART

 

David Song, Currency Strategist

Gold logs lowest finish since the start of the year as risk-on sentiment prevails

Gold logs lowest finish since the start of the year as risk-on sentiment prevails

Gold prices on Monday marked their lowest finish since the first full trading day of the year, finding little haven-related interest as appetite for riskier assets lifts global equities, the U.S. dollar strengthened against the Japanese yen, and bond yields climbed.

“Upbeat trader and investor attitudes” worked against the precious metals markets to start the trading week, said Jim Wyckoff, senior analyst at Kitco.com, in a daily note.

“The U.S.-Iran conflicted has, at least for the time being, died down and the U.S. and China are this week set to sign a partial trade deal, which is likely to stimulate global economic growth in 2020,” he said. However, “the marketplace is keeping an eye on major protesting in Iran following the admission from the Iranian government that its military mistakenly shot down a passenger airliner last week.”

Against that backdrop, gold for February delivery GCG20, -0.72% on Comex fell $9.50, or 0.6%, to settle at $1,550.60 an ounce. That was the lowest finish for a most-active contract since Jan.2, FactSet data show. March silver SIH20, -1.12% lost 10.9 cents, or 0.6%, to $17.996 an ounce.

The U.S. dollar versus the Japanese yen rose 0.4% to trade at 109.918 USDJPY, +0.13% after hitting its highest level against the Japanese currency since late May. A stronger dollar is often seen as a negative for gold and other commodities priced in the unit, making them more expensive to users of other currencies. In addition, the Japanese yen is also seen as arguably the biggest beneficiary of haven flows during bouts of geopolitical uncertainty.

“If the price action on this pair is anything to go by then gold could head in the opposite direction as demand for safe-haven assets drop back with the U.S.-Iran tensions easing,” said Fawad Razaqzada, market analyst at Forex.com, in a note.

“Indeed, gold and the USD/JPY tend to have a strong negative correlation with one another. Gold bugs better hope then that either the negative correlation breaks down or the breakout in the USD/JPY turns out to be a fake one,” he said.

In other metals trading, March copper HGH20, -0.23% rose 1.7% to $2.861 a pound.

April platinum PLJ20, -0.83% fell 0.4% to $982.10 an ounce, while March palladium PAH20, +0.08% edged up by 0.3% at $2,079.10 an ounce. Prices for palladium shook off some earlier weakness to notch another record high.

“The path of least resistance remains up in the palladium market, with general optimism into the US/Chinese trade deal signing likely setting the stage for further new all-time highs,” said analysts at Zaner Metals in a daily note.

 

MYRA
P. SAEFONG
MARKETS/COMMODITIES REPORTER
Published: Jan 13, 2020 2:20 p.m. ET