Gold seems to be forming an uptrend as we approach month end again. Not sure if I want to be part of this one with the trade talk effect in play, but a dovish Fed would likely add rocket fuel to this emerging trend, so very tempestuous none the less.
But also worth noting, last month-end/quarter-end saw an almost 5% drop in the price of gold after a quarter where the metal had rallied by nearly 10%. Flow wise it been agonisingly slow this month but that could quickly change if Gold markets can hold above $1510 for a significant duration or even break above $1525
US-China trade negotiations continue to inject some uncertainty into financial markets, but Washington and Beijing seem to be coalescing behind a phase one of the trade talks which could be detrimental for gold prices. Still, analysts remain sceptical about the removal of existing tariffs. And without the withdrawal, a simple tariff detente suggests things might not get worse but doesn't necessarily mean macroeconomic conditions improve either.
There is a whole lot of " feel good " priced into the curve as no-deal Brexit and a messy escalation in the US-China trade war tail risks have diminished and are negatively impacting gold demand over the short term. However, whether any of this trade talks will l positively impact forward-looking sentiment gauges let alone, the global growth narrative is highly questionable, implying that global central banks may continue easing.
Gold currently remains supported above $1500 amid the backdrop of Fed rate-cut expectations, but unless increased expectations for further rate cuts are cemented post FOMC, the going could get especially tough if the USD bounces significantly higher on a less dovish Fed.
The China factor
While the FOMC is in focus this week it is hard to ignore the Chinese economy that is facing substantial downward pressure, which is expected to continue in Q4 2019 and 2020. Third-quarter exports remained weak while imports weakened further and when stripping out pork prices, CPI inflation is showing deflationary pressure while PPI is already there
China's economic slowdown and their ongoing deleveraging campaign that will create a monster downshift for the global economy but more worrisome for Asia risk sentiment is the economic headwinds will put significant downside pressure on the RMB over the next 6-12 months. As we've seen so often in the past, the stronger USD/CNH will act as a wrecking ball across Asia's capital markets.
There's a possible reason why central banks are backing the truck up on gold, and it's not because the Fed is about to cut interest rates or the dollar is expected to weaken, it might be because they think the world is on the verge of an impending recession.
Famous Gold Quotes
Gold gathers more than a shovel. Edward Counsel