Gold: Prices flying high – ANZ

According to ANZ analysts, gold has regained its mojo over the past three months, with its safe-haven status coming to the fore amid an escalation in the US-China trade war.

Key Quotes

“The tension has brought with it expectations of interest rate cuts by a multitude of central banks. However, technically, gold is looking overbought, and we wouldn’t be surprised to see prices pull back in the short term.”

“The recent escalation in US-China trade tug-of-war significantly raised the stakes, with the market growing concerned about a global recession. Manufacturing activity is already weak across various regions, and yield curves are inverting. Against such a backdrop, the central banks’ policies should remain accommodative. The US Federal Reserve looks committed to act appropriately to protect the US economy against any trade-related slowdown.”

“Investor demand continues to grow strongly. ETF gold holdings rose to 2426t, with year-to-date inflows of 216t. Speculative long positions have also increased by 447t to 1096t.”

“Gold has become a crowded trade, raising the possibility of a short-term correction. On a weekly basis, it has crossed the overbought line of 70 on the Relative Strength Index (RSI).”

“Net long positions are also at their highest since September 2016. However, history shows this hasn't been a hindrance to higher prices over the medium term. We believe the fundamentals should still be supportive enough to limit the losses in any technical-based sell-off. Ultimately we expect gold to trade higher over next 12-month.”