Giles Coghlan LLB, Lth, MA
Financial Source
There are good reasons to be bullish on gold. A strong seasonal pattern for January, with gold rising 7 years in a row during that month and low interest rates around the world are generally supportive of gold heading into year end. The approach of the Chinese lunar New Year, which prompts physical purchases of gold, generally supports gold at the start of the year.
On top of this the catalyst of potential safe haven demand on a US-China trade deal breaking down is the trigger that will send gold soaring into year end and the month of January. I hope it doesn't happen, for global growth's sake, but it would be a bullish case for gold. I would also expect a tweet from President Trump to throw the whole trade deal into question. That is the US President's pattern. It was the way that President Trump handled the USMCA deal and it is the way I expect the Us-China trade negotiations to continue.
However, it is good to keep things in balance, so what about the bearish reasons for gold? Here are a few factors that will weigh on gold going forward into 2020
-
The message from around the world’s central banks has been that monetary policy is dead; long live fiscal policy. Mario Draghi closed his chapter as ECB president with this very message. This means support for the economies around the world is moving from the central bank's domain (monetary policy) into the Government's remit (Fiscal policy). Fiscal policy is expected to lead to higher interest rates (and this will weigh on gold's appeal in a low interest rate world).
-
If the US-China phase 1 trade deal optimism picks up speed and we head towards phase 2 with, dare I say it, gusto and enthusiasm then gold's risk haven appeal weakens. This would result in gold weakness
So, there we have it - the bearish case for gold which is just the flips side of the bullish case really. Worth bearing in mind for your gold playbook as we approach January 2020. A stop underneath $1440 for gold longs will be an obvious choice for those positioning themselves for any further gold strength from here.
Our products and commentary provides general advice that do not take into account your personal objectives, financial situation or needs. The content of this website must not be construed as personal advice.
Recommended Content
Editors’ Picks
AUD/USD remained bid above 0.6500
AUD/USD extended further its bullish performance, advancing for the fourth session in a row on Thursday, although a sustainable breakout of the key 200-day SMA at 0.6526 still remain elusive.
EUR/USD faces a minor resistance near at 1.0750
EUR/USD quickly left behind Wednesday’s small downtick and resumed its uptrend north of 1.0700 the figure, always on the back of the persistent sell-off in the US Dollar ahead of key PCE data on Friday.
Gold holds around $2,330 after dismal US data
Gold fell below $2,320 in the early American session as US yields shot higher after the data showed a significant increase in the US GDP price deflator in Q1. With safe-haven flows dominating the markets, however, XAU/USD reversed its direction and rose above $2,340.
Bitcoin price continues to get rejected from $65K resistance as SEC delays decision on spot BTC ETF options
Bitcoin (BTC) price has markets in disarray, provoking a broader market crash as it slumped to the $62,000 range on Thursday. Meanwhile, reverberations from spot BTC exchange-traded funds (ETFs) continue to influence the market.
US economy: slower growth with stronger inflation
The dollar strengthened, and stocks fell after statistical data from the US. The focus was on the preliminary estimate of GDP for the first quarter. Annualised quarterly growth came in at just 1.6%, down from the 2.5% and 3.4% previously forecast.