Senior Market Strategist

Total Content 104

Articles 104

The 'never-ending' slide in gold

By David Morrison  |  14/08/2018 14:59
”gold

The dramatic sell-off in the Turkish lira and other emerging market currencies has raised concerns about contagion. But investors continue to spurn gold as the traditional ‘safe-haven’

Just two months ago gold was trading above $1,300 having pulled back from the $1,365 level (close to a 21-month high) hit in April. Today it broke below $1,200 to trade at its lowest level since January 2017. This 12% April-August sell-off corresponds to a 7.7% rally in the US Dollar Index over the same period and this goes a long way to explain investors’ reluctance to buy gold, in dollar terms at least.

Emerging market woes

But many would argue that this can’t be the whole story. When one considers the political landscape with the Turkish lira in near free-fall (although it has rallied a touch today) and the ongoing sell-off in other emerging market currencies (the Argentine peso, Brazilian real and South African rand to name just three) then it would seem reasonable that investors would want to diversify just a little bit and include some gold in their portfolios. The argument for owning gold is strengthened when one considers that the major US stock indices are trading close to all-time highs and may not offer the best returns going forward. Add in the Trump administration’s trade tariffs aimed at China and once again the old school view that gold offers protection in times of uncertainty should bear some consideration at least. But it’s just not happening. Gold is being spurned as a traditional safe-haven and ironically, it could be tariffs themselves which are weighing on the price.

Tariff tit-for-tat

Specific US tariffs on Chinese imports were announced at the beginning of this year. Despite this, the Chinese yuan continued to strengthen versus the dollar. But this turned out to be the last few weeks of a rally which had begun the year before and was really a weak-dollar story. Over the next 10 weeks the USDCNY traded sideways as the tit-for-tat tariff rhetoric ramped up. Then the US dollar rallied sharply in a move which has seen the yuan lose the best part of 10% to where we are today. It’s probably no coincidence that gold has lost a similar percentage over the same period. The theory is that China is informally pegging its currency to gold, setting the stage to challenge the dollar’s reserve currency role sometime in the future. Of course, that 10% fall in the yuan pretty much counters Trump’s 10% tariffs – currently set on the best part of the $50 billion-worth of Chinese exports to the US. The question is what happens if Trump goes ahead with his threat of upping tariffs to 25% and applying then to $200 billion worth of Chinese goods? Would China respond in kind and watch their currency fall by a commensurate percentage? A sharp 25%-yuan devaluation would cause market devastation. Bearing in mind the USDCNY is less than 2% below 7.00, a level some consider a red line when it comes to exacerbating an already dangerous stand-off between the US and China, then a move to 7.50 or beyond seems unlikely. Nevertheless, it’s difficult to see which country will blink first if this trade war hots up further.

The US dollar

Considering the US dollar, there are increasing concerns that the world is facing a shortage of its reserve currency. For a start, the US Federal Reserve is the one developed-world central bank that is actively tightening monetary policy. It is pushing up interest rates, thereby making the dollar attractive to foreign investment and so increasing demand. It is also reducing the size of its balance sheet as it no longer reinvests the proceeds of maturing bonds. Crudely put, when the Fed engaged in quantitative easing it bought US Treasuries and mortgage-backed bonds with dollars printed by the Treasury which added to dollar liquidity. Now that process is being reversed, while investors in emerging markets are dumping these currencies and buying greenbacks.

Looking for a crisis

On this basis, the outlook for gold doesn’t look great. But on the flip side it’s looking oversold and there have been times in the past, given certain conditions, that gold and the dollar have been positively correlated. Typically, this is in times of real financial crisis. It could be that a panic in emerging markets spreads to European and US banks. Or that an escalation in the trade war beyond a certain point leads to a sharp correction in US equities. We could see the US Treasury yield curve resume its flattening if third quarter economic data indicates we’ve seen the peak in economic growth and corporate earnings. But for now, gold bulls will be happy enough if prices would just stop falling.


Any information, analysis, opinion, commentary or research-based material on this page is for information purposes only and is not, in any circumstances, intended to be an offer of, or solicitation for, a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any person acting on it does so entirely at their own risk and GKFX accepts no responsibility for any adverse trading decisions. You should seek independent advice if you do not understand the associated risks.
 

Share

Author's Other Opinion & Analysis

  • Central bank meetings in focus
    By David Morrison  |  12/09/2018 15:12

    ECB and BoE meet on Thursday

  • German DAX continues to struggle
    By David Morrison  |  11/09/2018 15:09

    Another support level broken

  • Market Round-up
    By David Morrison  |  24/08/2018 13:44

    Longest-ever US bull market

  • Longest ever US bull market?
    By David Morrison  |  22/08/2018 15:01

    US equities remain in favour

  • Focus on Jackson Hole
    By David Morrison  |  21/08/2018 14:47

    Fed Chair speaks on Friday

  • S&P 500 backs away from record highs
    By David Morrison  |  16/08/2018 15:04

    US equities not immune from emerging market contagion

  • S&P 500 closes in on record high
    By David Morrison  |  08/08/2018 15:11

    US equities continue to strengthen

  • EURUSD bounces off 1.1500
    By David Morrison  |  07/08/2018 14:40

    EURUSD retests support

  • Weekly Market Wrap
    By David Morrison  |  03/08/2018 14:17

    The second quarter earnings season is beginning to wind down

  • Non-Farm Payroll look-ahead
    By David Morrison  |  02/08/2018 15:11

    Payrolls expected to grow by 190,000

  • Bank of England rate decision
    By David Morrison  |  01/08/2018 13:43

    Rate hike expected

  • Fed meeting look-ahead
    By David Morrison  |  31/07/2018 15:00

    Fed expected to keep rates unchanged

  • Weekly Market Wrap
    By David Morrison  |  27/07/2018 13:37

    This article looks ahead to next week’s earnings, central bank meetings and data releases

  • A pause in gold’s decline
    By David Morrison  |  25/07/2018 14:58

    Overall trend still negative

  • S&P 500 holding above 2,800
    By David Morrison  |  24/07/2018 14:53

    Retest of highs in prospect?

  • Crude steadies after slump
    By David Morrison  |  12/07/2018 14:00

    Trade fears trigger selling cascade

  • Gold threatens to break December lows
    By David Morrison  |  11/07/2018 14:27

    Gold under pressure

  • US S&P 500 retests resistance
    By David Morrison  |  10/07/2018 14:44

    Investors shrug off tariff concerns

  • Weekly look-ahead
    By David Morrison  |  06/07/2018 14:24

    Weekly Market Wrap

  • FOMC minutes and Non-Farm Payroll look-ahead
    By David Morrison  |  05/07/2018 13:07

    US employment update this Friday

  • Crude pulls back from multi-year highs
    By David Morrison  |  04/07/2018 15:06

    Saudi Arabia prepared to raise output

  • Investors relaxed over impending tariffs
    By David Morrison  |  03/07/2018 14:19

    Dollar slips and stock indices rally

  • S&P 500 retests support
    By David Morrison  |  02/07/2018 15:22

    Equity markets under pressure

  • No respite for Sterling
    By David Morrison  |  28/06/2018 15:32

    Pound under pressure

  • EU Summit and the single currency
    By David Morrison  |  27/06/2018 15:23

    Euro under pressure

  • Investors react to fears of trade tariff escalation
    By David Morrison  |  26/06/2018 15:32

    Monday saw significant selling across global equity markets

  • Weekly Market Wrap
    By David Morrison  |  15/06/2018 15:22

    There was a broad-based sell-off across risk assets on Friday

  • Traders turn to the ECB
    By David Morrison  |  14/06/2018 07:31

    Expectations have risen that the ECB will talk of ending QE

  • Federal Reserve set to raise rates
    By David Morrison  |  12/06/2018 14:55

    The Fed concludes its two-day FOMC meeting on Wednesday

  • Weekly market wrap
    By David Morrison  |  08/06/2018 15:22

    Next week sees central bank meetings for the US, Euro zone and Japan

  • WTI breaks below trend-line
    By David Morrison  |  05/06/2018 15:30

    Both Brent and WTI crude have sold off sharply

  • Weekly market wrap
    By David Morrison  |  01/06/2018 14:29

    Friday’s Non-Farm Payroll number was much stronger than expected

  • Non-Farm Payroll look-ahead
    By David Morrison  |  31/05/2018 15:42

    This Friday sees the release of US Non-Farm Payrolls for May

  • Weekly look-ahead
    By David Morrison  |  25/05/2018 15:10

    It’s a holiday-shortened week with Bank Holidays on Monday for both the UK and US

  • EURUSD update
    By David Morrison  |  23/05/2018 15:20

    The EURUSD currency pair took another lurch lower today

  • Weekly Market Wrap
    By David Morrison  |  18/05/2018 15:26

    Traders are keeping a close eye on oil prices, the dollar and US Treasury bonds

  • Gold under pressure
    By David Morrison  |  16/05/2018 13:58

    Gold had shown remarkable resilience over the past few weeks

  • Weekly Market Wrap
    By David Morrison  |  11/05/2018 15:04

    Equities rallied last week

  • Bank of England rate decision
    By David Morrison  |  09/05/2018 14:59

    A look at Thursday's MPC rate decision

  • Weekly Market Wrap
    By David Morrison  |  04/05/2018 15:21

    Friday brought the release of the latest US Non-Farm Payroll report

  • Dollar break-out
    By David Morrison  |  02/05/2018 08:12

    Early last week the dollar broke out of several trading ranges

  • Weekly market wrap
    By David Morrison  |  27/04/2018 15:13

    The yield on the benchmark 10-year Treasury note broke above the significant 3.0% level

  • Crude weaker, but still near highs
    By David Morrison  |  25/04/2018 15:32

    Oil fell yesterday following comments from French President Emmanuel Macron

  • US dollar breaks out
    By David Morrison  |  24/04/2018 15:55

    Yesterday evening the Dollar Index broke above 90.00

  • Weekly market wrap
    By David Morrison  |  20/04/2018 15:06

    Earnings continue to get a boost on...

  • Another look at the EURUSD
    By David Morrison  |  18/04/2018 15:06

    Trump accuses China and Russia of “playing the currency devaluation game”.

  • S&P 500 update
    By David Morrison  |  17/04/2018 15:53

    The US stock market steadied last week

  • Weekly market wrap
    By David Morrison  |  13/04/2018 15:19

    The first quarter earnings season got underway last week

  • EURUSD update
    By David Morrison  |  11/04/2018 08:14

    Still range-bound near highs

  • Weekly market wrap
    By David Morrison  |  06/04/2018 15:29

    US payrolls disappoint

  • Non-Farm Payroll look-ahead
    By David Morrison  |  05/04/2018 13:48

    Tomorrow sees the latest update for arguably the most important, and potentially market-moving, global data release – US Non-Farm Payrolls.

  • S&P 500 update
    By David Morrison  |  04/04/2018 14:31

    S&P 500 breaks below 200-day moving average

  • Weekly market wrap
    By David Morrison  |  29/03/2018 13:38

    This Easter holiday couldn’t really come at a worse time

  • S&P 500 - update
    By David Morrison  |  27/03/2018 13:47

    The S&P since February's sell-off

  • Weekly look-ahead
    By David Morrison  |  23/03/2018 16:59

    Holiday-shortened week

  • NASDAQ leads sell-off
    By David Morrison  |  22/03/2018 15:53

    Markets lead lower by tech sell-off

  • Fed meeting in focus
    By David Morrison  |  21/03/2018 10:50

    Investors on edge ahead of Fed decision

  • Weekly Outlook
    By David Morrison  |  16/03/2018 15:41

    Fed meeting in focus

  • S&P 500 - the technical picture
    By David Morrison  |  14/03/2018 16:34

    This week has seen the US majors pull back from their best levels

  • Weekly look-ahead
    By David Morrison  |  09/03/2018 16:16

    The headline payroll number smashed above the high end of expectations

  • Non-Farm Payroll look-ahead
    By David Morrison  |  08/03/2018 14:30

    All eyes on wage growth

  • ECB and BOJ meetings in focus
    By David Morrison  |  07/03/2018 17:24

    Investors experienced a shock last month

  • Weekly Outlook
    By David Morrison  |  05/03/2018 10:15

    This is a big week for financial markets

  • Euro bounces, but political uncertainty remains
    By David Morrison  |  02/03/2018 11:01

    The euro rallied sharply overnight

  • Weekly look-ahead
    By David Morrison  |  23/02/2018 16:58

    US stock index futures were pushing higher ahead of Friday’s US open.

  • FOMC minutes and the German DAX
    By David Morrison  |  22/02/2018 14:33

    Investors were initially wrong-footed by minutes from a Federal Reserve meeting.

  • FOMC minutes in focus
    By David Morrison  |  21/02/2018 11:47

    All eyes are on the release of minutes from the Fed’s January FOMC meeting

  • Situation remains unresolved
    By David Morrison  |  20/02/2018 13:09

    The stock market correction may have further to go

  • Weekly Outlook
    By David Morrison  |  16/02/2018 16:02

    Global stock indices fought back last week

  • Out of the woods? Perhaps not
    By David Morrison  |  15/02/2018 13:37

    Yesterday brought the latest update on US inflation

  • Inflation and the S&P 500
    By David Morrison  |  12/02/2018 16:30

    This article will focus on the S&P 500

  • Weekly Outlook
    By David Morrison  |  09/02/2018 16:35

    Friday was a roller-coaster session to round off a tumultuous week.

  • What now?
    By David Morrison  |  08/02/2018 15:54

    The current sell-off in global equities has been a long time coming.

  • Traders focus on volatility
    By David Morrison  |  06/02/2018 16:55

    Yesterday the Dow posted its biggest ever one-day loss in points terms

  • Rising yields lift troubled dollar
    By David Morrison  |  05/02/2018 16:17

    The US dollar stages a modest recovery.

  • Weekly look-ahead
    By David Morrison  |  02/02/2018 16:12

    Equity sell-off resumes while dollar rallies

  • Time for a correction?
    By David Morrison  |  31/01/2018 16:22

    Equities retreat as yields push higher

  • Crude prices dip
    By David Morrison  |  29/01/2018 15:57

    Oil slides as dollar rallies

  • Weekly look-ahead
    By David Morrison  |  26/01/2018 15:16

    What's in store for key markets

  • Dollar hits fresh 3-year lows
    By David Morrison  |  24/01/2018 16:38

    US dollar plunges ahead of Trump's Davos speech

  • Wall Street hits fresh highs
    By David Morrison  |  23/01/2018 15:46

    The three-day US government shutdown ended on Monday

  • Market Round-up
    By David Morrison  |  22/01/2018 16:53

    Monday marked day three of the US government shutdown.

  • Weekly look-ahead
    By David Morrison  |  19/01/2018 16:30

    The last couple of weeks have seen a number of significant technical breakouts

  • S&P 500 – Weekly Chart
    By David Morrison  |  18/01/2018 15:24

    Putting price action into context

  • Crude pulls back from three-year highs
    By David Morrison  |  17/01/2018 16:32

    On Monday WTI and Brent hit their highest levels since early December 2014

  • Gold, the dollar, bond yields and inflation
    By David Morrison  |  16/01/2018 15:00

    But in line with conventional wisdom the dollar’s sell-off triggered a sharp rally in gold.

  • Weekly look-ahead
    By David Morrison  |  12/01/2018 16:50

    Earlier in the week the US majors had a slight wobble

  • Gold traders eyeing the dollar
    By David Morrison  |  11/01/2018 15:48

    This article considers the recent price action on gold

  • Chinese news rattles markets
    By David Morrison  |  10/01/2018 15:33

    Chinese officials recommend “slowing or halting”

  • Could stocks rally further?
    By David Morrison  |  08/01/2018 17:00

    Most European stock indices ended Monday’s session in positive territory, playing catch-up after Wall Street’s sharp rally last week.

  • Weekly look-ahead
    By David Morrison  |  05/01/2018 15:55

    We rounded off this week with the final Non-Farm Payroll report of 2017. Headline payrolls rose 148,000 which was well below the 190,000 increase expected.

  • Dow smashes through 25,000
    By David Morrison  |  04/01/2018 16:07

    Yesterday the US majors ended at fresh all-time highs and this helped to lift Asian Pacific indices overnight.

  • US indices hit fresh record highs
    By David Morrison  |  03/01/2018 16:08

    US stock indices made another strong upside move yesterday which took both the S&P 500 and NASDAQ Composite up to fresh record highs. The buying has continued throughout today’s session

  • Mixed start to New Year
    By David Morrison  |  02/01/2018 16:56

    The first trading day of 2018 brought a mixed session as far as global stock indices were concerned.

  • New Year round-up
    By David Morrison  |  29/12/2017 15:22

    As 2017 draws to a close, here’s a quick round-up of how a few key markets look going into next year.

  • What's Next for Crude Oil?
    By David Morrison  |  19/12/2017 14:42

    This article will focus on price action in the front month WTI contract rather than Brent. WTI tends to provide better technical signals than Brent – not always, but often enough to give a cleaner overall picture.

  • Equities soar on US tax reform hopes
    By David Morrison  |  18/12/2017 16:10

    US and European stock indices soared on Monday as investors priced in an increasing probability that President Trump will deliver on his promise of tax reform before year-end.

  • Weekly Outlook
    By David Morrison  |  15/12/2017 14:26

    Here’s a brief heads-up for the week beginning 18th December

  • Central Bank monetary policy meetings
    By David Morrison  |  14/12/2017 15:48

    Here’s a quick rundown of the highlights from this week’s monetary policy meetings from the European Central Bank, Bank of England and US Federal Reserve

  • Look-ahead to the Federal Reserve meeting
    By David Morrison  |  13/12/2017 08:49

    Crucially, this week’s Fed meeting also brings an update to the FOMC’s Summary of Economic Projections.

  • Cboe launches Bitcoin futures
    By David Morrison  |  11/12/2017 16:26

    Listing Bitcoin futures on mainstream exchanges should ultimately help to boost the digital currency’s legitimacy and lead to more widespread acceptance.

  • Non-Farm Payroll look-ahead: 6 things you should know
    By David Morrison  |  08/12/2017 09:55

    So, here’s what to look for: the consensus expectation is for the headline Non-Farm Payrolls to rise 200,000 in November.

  • EURUSD – key events to consider
    By David Morrison  |  06/12/2017 17:07

    The dollar got a boost this week on the increased likelihood of an agreement on US tax reform being reached before the year-end.

Show More Articles

Sentiment

Open a Demo Account Open A Live Account

Losses can exceed deposits

RISK WARNING

The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice.

If such information is acted upon by you then this should be solely at your discretion and GKFX will not be held accountable in any way.

  • ForexF
  • IndicesI
  • CommoditiesC
        Back

        Login to Market Insight Account

        Your Market Insight account gives you access to the tools that we offer our customers including our
        Technical Studies & Sentiment for your accounts.

        Forgot Password?

        Don't you have a Market Insight account? With a few easy steps you can easily register to Market Insight

        Create a Market Insight's Account

        Your Market Insight account gives you access to the tools that we offer our customers including our Technical Studies & Sentiment for your accounts.

        register_ty

        Thank you!

        Welcome to Market Insight family!

        You have succesfully completed the registration.
        We will send you an e-mail to give you some
        instructions and our Terms and Conditions!
        Our account representatives will be contacting you as
        soon as possible. If you have any further questions
        please do not hesitate to mail us via info@marketinsight.com