Gold Weekly
Turning point
Until May 2019 gold was meandering along and was starting to lose its appeal but then made explosive gains on a confluence of Fed rate cuts, the inversion of the US yield curve, easy global monetary policies , the deluge of negatively yielding sovereign bonds globally, escalating trade and geopolitical risks, and stock market wobbles, the combination of these factors created sufficient investor uncertainty to trigger significant "safe-haven" demand, into gold.
Until May 2019 gold was meandering along and was starting to lose its appeal but then made explosive gains on a confluence of Fed rate cuts, the inversion of the US yield curve, easy global monetary policies , the deluge of negatively yielding sovereign bonds globally, escalating trade and geopolitical risks, and stock market wobbles, the combination of these factors created sufficient investor uncertainty to trigger significant "safe-haven" demand, into gold.
AxiTrader chart
Gold's Primary Drivers
Low yields and elevated levels of sub-zero yielding sovereign bonds are incredibly supportive for gold as they reduce the opportunity cost of owning bullion.
Ongoing easy monetary policies will likely support gold.
Fed policy is the key.
The Federal Reserve Board is expected to cut interest rates at least one more time in 2019, but a Fed cut in October is essential for gold momentum as it then opens the door for another rate cut in December if warranted. But if the Fed indicates a hawkish rate cut or doesn’t cut rates in October, gold could struggle.
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CME Watch Tool
Global central bank policy
Other global central banks from Sydney to Tokyo from Beijing to Frankfurt are expected to ease monetary policy further which will likely continue to support Gold, albeit much of this narrative is packed into the rates curve and possibly heavily factored into gold forward prices and therefore might be less of a bullish influence going forward.
Some central banks are now questioning the effectiveness of lowering interest below 1 % while others who are below the zero lower bound are increasingly looking for the government to do their share of the heavy lifting which may not support gold as a shift to the fiscal policy could send bond yields higher and lessen golds opportunity costs.
Gold's Primary Drivers
Low yields and elevated levels of sub-zero yielding sovereign bonds are incredibly supportive for gold as they reduce the opportunity cost of owning bullion.
Ongoing easy monetary policies will likely support gold.
Fed policy is the key.
The Federal Reserve Board is expected to cut interest rates at least one more time in 2019, but a Fed cut in October is essential for gold momentum as it then opens the door for another rate cut in December if warranted. But if the Fed indicates a hawkish rate cut or doesn’t cut rates in October, gold could struggle.
-637066095194744478.png)
CME Watch Tool
Global central bank policy
Other global central banks from Sydney to Tokyo from Beijing to Frankfurt are expected to ease monetary policy further which will likely continue to support Gold, albeit much of this narrative is packed into the rates curve and possibly heavily factored into gold forward prices and therefore might be less of a bullish influence going forward.
Some central banks are now questioning the effectiveness of lowering interest below 1 % while others who are below the zero lower bound are increasingly looking for the government to do their share of the heavy lifting which may not support gold as a shift to the fiscal policy could send bond yields higher and lessen golds opportunity costs.
US Yield Curve
Both the shape of the US yield curve and the absolute level for the US 10-year treasury yields could be the key for gold's next significant rise. Yield curve inversion is excellent for gold sentiment as will be a move below 1.5 % in the 10-year US treasury yields which will trigger safe-haven demand and will support Gold while a flat yield curve reduces the opportunity cost of owning Gold.
But a shift in the Fed monetary stance to an easing bias will go along way to lowering bond yields and extending the Gold rally in 2019. A fed shit to and explicit easing bias is critical for higher gold prices for the remainder of 2019.
-637066095500534518.png&w=1536&q=95)
Bloomberg
Gold as a haven
Gold is the focus of "safe-haven" demand. Ongoing trade and geopolitical risks, which have exponentially increased this year have seen massive flows funnel into ETF and COMEX gold positions.
A trade war detent and a Brexit deal take the shine off the gold appeal.
However, Geopolitical risk, which is gold positive, is expected to rise in 2020 as middle east hotspots and global waves of populism continue to dot the global landscape.
Given increased financial market uncertainties and global economic slump, gold may remain supported in the face of trade war detent and as Brexit mercifully ends in a deal.
Central Banks
The great think about central bank demand is the purchase sit in vault doing little more than collecting dust with little to no threat of that supply coming back to the market anytime soon.
Central banks Central bank gold demand jumped sharply in 2018, rising to 657t, a 75% increase from 2017. The bulk of central bank purchases in 2018 were initiated by just a few nations: Russia, Turkey, and Kazakhstan. That said, a total of 24 central banks bought Gold in 2018, some of them for the first time in decades. But it was The Peoples Bank of China gold purchase that caught the market intention in late 2018 and who are expected to diversify their reserves away for the USD and negative EU bond yields and back into Gold throughout the rest of 2019 and well into 2020.
Beginning in 2010, Central Banks around the world turned from being nett sellers of gold to net buyers. In 2018, official sector activity rose 46 per cent to 536 tonnes of purchases – the second-highest level of demand this century, according to the GFMS Gold Survey.
-637066095983202664.png&w=1536&q=95)
Gold positions
Record higher net long positions on the Comex and robust ETF accumulation has been the stamp of authenticity for this year Gold rally as investors shift into Gold in repost to heightened financial risk and lower bond yields. But these significant open positions leave gold investors extremely prone to profit-taking which could add a layer of position uncertainty heading into years end.
-637066096228988845.png&w=1536&q=95)
This Weeks Drivers
Both the shape of the US yield curve and the absolute level for the US 10-year treasury yields could be the key for gold's next significant rise. Yield curve inversion is excellent for gold sentiment as will be a move below 1.5 % in the 10-year US treasury yields which will trigger safe-haven demand and will support Gold while a flat yield curve reduces the opportunity cost of owning Gold.
But a shift in the Fed monetary stance to an easing bias will go along way to lowering bond yields and extending the Gold rally in 2019. A fed shit to and explicit easing bias is critical for higher gold prices for the remainder of 2019.
-637066095500534518.png)
Bloomberg
Gold as a haven
Gold is the focus of "safe-haven" demand. Ongoing trade and geopolitical risks, which have exponentially increased this year have seen massive flows funnel into ETF and COMEX gold positions.
A trade war detent and a Brexit deal take the shine off the gold appeal.
However, Geopolitical risk, which is gold positive, is expected to rise in 2020 as middle east hotspots and global waves of populism continue to dot the global landscape.
Given increased financial market uncertainties and global economic slump, gold may remain supported in the face of trade war detent and as Brexit mercifully ends in a deal.
Central Banks
The great think about central bank demand is the purchase sit in vault doing little more than collecting dust with little to no threat of that supply coming back to the market anytime soon.
Central banks Central bank gold demand jumped sharply in 2018, rising to 657t, a 75% increase from 2017. The bulk of central bank purchases in 2018 were initiated by just a few nations: Russia, Turkey, and Kazakhstan. That said, a total of 24 central banks bought Gold in 2018, some of them for the first time in decades. But it was The Peoples Bank of China gold purchase that caught the market intention in late 2018 and who are expected to diversify their reserves away for the USD and negative EU bond yields and back into Gold throughout the rest of 2019 and well into 2020.
Beginning in 2010, Central Banks around the world turned from being nett sellers of gold to net buyers. In 2018, official sector activity rose 46 per cent to 536 tonnes of purchases – the second-highest level of demand this century, according to the GFMS Gold Survey.
Gold positions
Record higher net long positions on the Comex and robust ETF accumulation has been the stamp of authenticity for this year Gold rally as investors shift into Gold in repost to heightened financial risk and lower bond yields. But these significant open positions leave gold investors extremely prone to profit-taking which could add a layer of position uncertainty heading into years end.
-637066096228988845.png)
This Weeks Drivers
- Fed Speak
- Wednesday's US retail sales and Thursday's industrial production reports will be the critical focus for Fed policymakers.
- Yuan Fix, how far below 7.07
- US Ten Year Bond Yields
- China Data Dump
- Bank of Korea and MAS Forward Guidance
- The US Dollar
Famous Gold Quotes
Hunger for gold is made greater as more gold is acquired. Aurelius Clemens Prudentius
Author
Stephen Innes
SPI Asset Management
With more than 25 years of experience, Stephen has a deep-seated knowledge of G10 and Asian currency markets as well as precious metal and oil markets.
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