Why the reluctance to buy gold these days
|Gold
Given the binary nature of Saturday's major Brexit risk event, it feels safer to de-risk rather than add.
Still, gold trades better-offered probably on the back of improving news flows around the US-China trade talks, but if you actually trade gold you can feel the lack of emotion in the markets these days as buying interest continues to run tepid.
The expectation for weaker economic data and the current level of central bank policy response seems to be all factored into the current price suggesting Gold traders need a new catalyst.
Look I'm not suggesting Gold won't test $1600 in 2020 I still think it could, but rather I'm going through my usual Friday exercise in Gold and Oil market price discovery.
Why the reluctance to buy gold these days?
In early September I was laughed off the desk, well actually laughed out of the room when I suggested central banks are looking to walk back from the cliff edge of the rate cut mania which could weaken gold prices over the near term. After all, it was central bank easing that was the primary driver of gold fever circa 2019.
Earlier in the week two local central banks – Singapore and Korea – eased somewhat 'hawkishly' (MAS only 50bp, BOK with two dissents), but kept reasonably dovish forward guidance but this move was significantly less dovish than the market had expected.
RBA Governor Lowe, speaking at the IMF on Friday, hosed down prospects of further interest-rate cuts, saying the Australian economy should return to trend growth next year. While noting that further OCR cuts were possible, Lowe said he "wouldn't assume it".
Today BOE Ramsden said that a smooth Brexit would put rate hikes back on the table.
Even with the Chinese GDP growth testing the lower bound of the official annual target 6-6.5%, with high CPI inflation, it potentially reduces the scope for future monetary policy support.
It does appear whether they want to or not central banks are walking back from the rate cut abyss which will l lessen gold's appeal
The shifting winds of the US-China trade war
Much of the global economic slow down can be attributed to the weaker business investment. Today, for example, Chinese third-quarter GDP was slightly lower than expected, on the back of weaker investment spending.
As far as business owners are likely concerned, putting a tariff on trade effectively taxes their investment and what company owner on the planet wants to pay taxes on capital investment.
So long as there are no more tariff and a possible role back of existing ones, it would be reasonable to assume that the CEO's could loosen their purse strings and start reinvesting and significantly improve the global economic climate.
If some or all of the existing tariffs get rolled back, growth assets might explode higher, and gold could fall off its high horse pretty quickly.
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