IGI Securities Limited – Commodity News

Karachi, January 09, 2019 (PPI-OT): Gold

Technical

Gold markets continue to be very choppy, after breaking out of a major uptrend channel. This shows the market is probably going to continue to be positive overall. This is a market that continues to find reasons to go higher, perhaps in a bid for safety, perhaps due to the Federal Reserve sounding a little less hawkish than previously thought. Now that the Federal Reserve is becoming more “data dependent”, it’s likely that it will continue to see a lot of noise in this market. The break out that it has recently seen is in fact something that should be paying attention to, because it was crucial. The $1300 level above of course is going to cause a certain amount of interest, but it will be temporary at best. If it can break above there, then the market should go looking towards the $1400 level, an area that was the top of the longer-term consolidation.

Highlights

Gold fell as global stocks rose on improved prospects for a U.S-China trade deal

An improved risk appetite capped gains for the safe-haven metal

A weakening dollar and falling US treasury yields should keep gold pushing higher

Gold still has some room to move higher as the dollar is weakening and that would be an offset to stabilizing stocks

The 10-year US treasuries yields are down more than 50 basis points from its October peak of 3.261%

Fundamentals

Gold held steady today as a surge in risk appetite on hopes of a Sino-U.S trade deal offset support from expectations of a pause in U.S Federal Reserve rate hikes.

The United States and China will continue trade talks in Beijing for an unscheduled third day, a member of the U.S delegation said amid signs of progress on issues including purchases of U.S farm and energy commodities and increased access to China’s markets.

An index of world stock markets rose for the third straight session, with investors hopeful that the United States and China would strike a deal to end their months-long trade war.

Gold tends to gain when expectations of interest rate hikes ease because lower rates reduce the opportunity cost of holding non-yielding bullion and weigh on the dollar, in which it is priced.

World stocks, which have been pressured by global growth concerns, rallied on hopes that the United States and China may be moving toward a trade deal. Even with equity markets stabilising, gold has held a bid suggesting that there’s sovereign buying in the background.

The dollar rebounded from a nearly three-month low in the previous session amid expectations of a pause in the U.S rate hike cycle. A higher dollar makes gold more expensive for holders of other currencies.

The fact equity prices have stabilized has had a bit of a negative impact on gold prices, especially as the yellow metal has already reached a critical resistance area around $1,295.