Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks Bull Market Smoking Gun - 25th May 24
Congress Moves against Totalitarian Central Bank Digital Currency Schemes - 25th May 24
Government Tinkering With Prices Is Like Hiding All of the Street Signs - 25th May 24
Gold Mid Tier Mining Stocks Fundamentals - 25th May 24
Why US Interest Rates are a Nothing Burger - 24th May 24
Big Banks Are Pressuring The Fed To Losen Protection For Depositors - 24th May 24
Another Bank Failure: How to Tell if Your Bank is At Risk - 24th May 24
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Where Next For Gold After Touching the $1,300 Mark?

Commodities / Gold & Silver 2019 May 17, 2019 - 03:30 PM GMT

By: Arkadiusz_Sieron

Commodities

On Monday, the price of gold has briefly jumped above $1,300. For the next two days, the yellow metal has been holding near that important psychological level, although it failed to rally subsequently. Let’s take a look at the trigger(s) of the upward move. The reaction of the gold market over the following days is pretty telling...

China Strikes Back

It has been a hot week! Indeed, just look at the chart below. As you can see, the price of the yellow metal leaped to $1,300 on Monday, even surpassing briefly that key level. What happened exactly?


Chart 1: Gold prices from May 13 to May 15, 2019.


First of all, China has imposed new retaliatory tariffs on $60 billion worth of U.S. goods in a response to the raise in tariffs from 10 to 25 percent on $200 billion worth Chinese goods levied by Trump on Friday. The Red Dragon announced higher tariffs – they are going to raise them from 10 to 15 and 25 percent, depending on the product – on goods ranging from liquefied natural gas to toothpaste. The Wall Street did not welcome the move: the S&P 500 Index fell 2.4 percent, its worst day since early January, while the NASDAQ dropped 3.4 percent, its greatest loss since early December 2018.

The risk-off sentiment triggered by the renewed trade war clearly helped gold, a safe-haven asset. Moreover, after the stock market turmoil, investors increased their bets that the Fed will have to cut the federal funds rate later this year. The market odds of such a move in 2019 rose to 75 percent from about 40 percent one month ago. Such dovish expectations made the bond yields to decline, as one can see in the chart below. Lower interest rates also supported the gold prices.

Chart 2: Yield on the US 10-year Treasuries from May 2, to May 15, 2019.


Retail Sales and Industrial Production Disappoint

Second, some key economic reports have been released this week, bringing a negative surprise to the markets. They can’t explain the gold prices’ rise to $1,300, which happened earlier, but they could support the yellow metal in hovering around that level on Wednesday. We mean here, of course, the surprising decline of retail sales in April. The sales at U.S. retailers fell 0.2 percent last month, marking the second decrease over the last three months. The drop is disturbing as healthy labor market should translate into solid spending.
Moreover, industrial production fell 0.5 in April. Both these reports suggest softer second-quarter growth rate. Indeed, the Atlanta Fed forecasts now that the US GDP will increase 1.1 percent in the second quarter, compared to 1.6 percent rate expected before the April data on retail sales and industrial production. Slower economic growth is better for the gold prices than faster expansion, but it might be not enough to trigger a genuine rally.

Implications for Gold

What does it all mean for the gold market? Well, the weaker than expected economic reports and elevated geopolitical uncertainty (due not only to the trade wars, but also to the rising tensions between the US and Iran) should support the gold prices. However, the gold’s failure to rise more decisively is more than telling. In part, it can result from Tuesday’s more upbeat comments from American and Chinese officials on striking a trade deal. But it might also suggest that we have still a goldilocks economy, and that gold is still not ready to rally. We could see short-term volatility, especially if tensions with Iran escalate into something bigger. But – given the lack of recessionary signals and the greenback’s solid position – we do not yet see a fundamental game-changer for the gold market.

Thank you.

If you enjoyed the above analysis and would you like to know more about the link between the U.S. economy and the gold market, we invite you to read the August Market Overview report. If you're interested in the detailed price analysis and price projections with targets, we invite you to sign up for our Gold & Silver Trading Alerts . If you're not ready to subscribe at this time, we invite you to sign up for our gold newsletter and stay up-to-date with our latest free articles. It's free and you can unsubscribe anytime.

Arkadiusz Sieron

Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Arkadiusz Sieron Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in