Gold’s weekly update: Renewed bullish tendencies for Gold’s price

Since our last outlook, gold’s price started to rise, at first timidly yet with greater intensity since the start of the week. In today’s report we are to discuss on a fundamental level, the validity of the negative correlation of gold’s price with the USD at the current stage, the improvement of the US-Sino trade relationships, the lifting of the US Government shutdown and market’s worries for the US economic outlook. Finally, we are adding also a technical analysis of gold’s daily chart.

Gold’s negative correlation with the USD still inactive

As noted gold’s price had a timid rise from last Wednesday until Friday, and rallied since yesterday. On the other hand the USD remained relatively stable despite some slight bearish tendencies. Hence the different direction of the two trading instruments tend to render their negative correlation as currently inactive. Furthermore we also note that US bond yields have been on the rise since the start of the week in parallel to the rise of gold’s price, in a sign that the increased attractiveness of US bonds has failed to lure gold traders or investors. Hence we should be looking at other factors possibly supporting gold’s price.

Market worries for the US economic outlook are intensifying

We view the market worries for the US macroeconomic outlook as a possible reason for the recent ascent of gold’s price, as such worries could provide safe haven inflows for the precious metal. The US Government shutdown has kept the markets practically in the dark over the past six weeks. The signals the market got from indicators generated by the private sector and universities, do not paint a rosy picture for the US economy. We are getting mixed signals about economic activity in the past month from the ISM PMI figures, indication for further easing of the US employment market with the Challenger Layoffs showing a tripling of layoffs in October, while the University of Michigan implies a less optimistic outlook and worsening conditions for the demand side of the US economy. Hence news are mixed at best and probably bad. All of this tends to create uncertainty among traders and flight to safety by the purchasing of gold. Similarly the market’s worries tend to intensify expectations for the Fed to continue easing its monetary policy beyond December which also tends to provide support for the shiny metal’s price.

The improvement of the US-Sino trade relationships could weigh on gold’s price

Also on a fundamental level, we note the improvement of the US-Sino trade relationships. On Sunday the Chinese Commerce ministry announced an end to the banning of rare earth exports to the US, a development which traces its origins in the agreements made between US President Trump and Chinese President Xi in Korea. China announced that it’s to halt the banning of rare earth exports, among which Gallium, Germanium and Antimony. On the one hand the Chinese halting of rare earth export controls if not banning, tends to highlight an improvement of the US Sino trade relationships, given that it was a basic US request which in turn tends to weigh on gold’s price as it reduces the uncertainty for international trade. On the flip side, we may see the Chinese concessions falling short of US President Trump’s expectations and thus we may see a reignition of tensions in the trade relationships of the two countries, in which case we may see gold’s price gaining support.      

End of US Government shutdown in sight

The US Senate has voted and passed the bill required to end the ongoing US government shutdown. The vote passed with 60 Senators voting in favour of the bill and 40 voting to reject the proposal. The bill will now head to the US House of Representatives which is controlled by the Republicans and thus in our view the bill is expected to be passed. However, per Reuters “The deal would extend funding through January 30, leaving the federal government for now on a path to keep adding about $1.8 trillion a year to its $38 trillion in debt”, which could lead to heightened uncertainty with the start of the new year, as they will need to agree on another deal to prevent another Government shutdown post January 30^th.Nonetheless, the passing of the bill and the anticipated favourable outcome from the House of Representatives may weigh on gold’s price as a certain factor of uncertainty for the markets would be at least partially eliminated for now. 

Technical analysis

XAU/USD daily chart

• Support: 3885 (S1), 3615 (S2), 3450 (S3).
• Resistance: 4155 (R1), 4380 (R2), 4600 (R3).

Gold’s price rose since the start of the week and is currently flirting with the 4155 (R1) resistance line. It should be noted that also the RSI indicator was able to escape the gravity exercised by reading of 50, and has currently reached the reading of 60, implying an intensification of the bullish predisposition of the market sentiment for gold’s price. We tend to lean towards a bullish outlook for gold’s price, yet we would require also clear breaking of the R1 before abandoning our bias for a sideways motion. Should the bulls continue to lead the bullion’s price action, we may see it after breaking the 4155 (R1) resistance line taking aim of the 4380 (R2) resistance level, which is also an All Time High level for gold’s price. On the flip side, despite a bearish outlook seeming remote at the current stage, for its possible adoption we would require gold’s price to reverse direction, break the 3885 (S1) support line and start aiming for the 3615 (S2) support base.