With the US Government shutdown coming to an end, delayed US data will begin to filter through and after the dovish shift from the Fed it will be interesting to see if US economic outperformance continues to show and how this impacts on the dollar. With special focus on gold this week, we look at the key factors impacting on forex, equities and commodities.
Given what we believe to be a key long term technical hurdle was decisively overcome last week, we are now long term bullish on gold. The technical long term pivot band between $1300//$1310 has been a crucial turning point for over two and a half years. The break to the upside means that this pivot is now a basis of support and we are now bullish in 2019 for a test of the key resistance band between $1365/$1390 which has capped every significant move higher in the past five years. So, why is gold running higher now? There is a seasonal factor to consider, with Chinese Golden Week (starting this week) typically increasing physical demand, whilst according to the World Gold Council central banks are busy buying gold, increasing their gold reserves by 651 tonnes in 2018, which is the biggest since 1971. This year, we are seeing the development of a global cyclical downturn (which is gold positive), whilst the Fed has just pushed the pause button on its tightening cycle, citing concerns over a slowdown in China and Eurozone, and even Brexit. Gold performs strongly when real yields are falling, whilst performing negatively as real yields rise. On a longer term basis, real yields are subdued, which explains why gold has not been in a rampant bull market and has broadly ranged for the past five years. There is a caveat though, and the aspect of risk appetite, which would be boosted should the US and China come to an agreement on trade. However, this would likely just act as a parachute on a bull run as the dollar negative aspect would allow gold to continue higher.