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Gold - 09/08/2019

Micro Analysis

09 August, 2019

For General Information only. Not Intended to Provide Trading or Investment Advice. Your Capital is at Risk.

TREND: UP

Will US-China relations continue to deteriorate?

Increasing trade tensions between China and the US and rising expectations for an economic recession boosted demand for safe-haven instruments. The escalation of a bruising trade war happened on August 1, when U.S. President Donald Trump vowed to impose a 10% tariff on $300 billion of Chinese imports from Sept. 1. China decided to hit back on Monday (Aug. 5) by allowing the devaluation of its currency and halt purchases of US agricultural products. A new round of negotiations is expected in early September.

Global Central Banks to pursue accommodative monetary policies due to fears over possible recession

In 2019, Major Central Banks worldwide have expressed their worries over a potential global economic slowdown. To this end, they started again to pursue lower interest rates in order to avoid an unwanted economic recession. The Reserve Bank of Australia has already decreased its cash rate twice in 2019 from 1.50% to 1.00%. Economists expect at least one more cut by year’s end. The US Fed has also joined the circle by cutting its benchmark interest rate by 25 basis points (from 2.50% to 2.25%), with Fed Chair Jerome Powell saying that this might not be just one rate cut. The markets expect the US Fed to cut once more by at least 25 basis points in September. In addition, the Eurozone continued with its economic struggles, which have forced the European Central Bank to consider an interest rate cut of 10 basis points in September 2019. Sluggish inflation in Japan, on the other hand, keeps the door open for an expanded and extended stimulus to be pursued by the Bank of Japan, with the possibility of an interest rate cut, too. Brexit uncertainties and heightened chances for a no- deal Brexit have also increased market expectations for a possible interest rate cut by the Bank of England in 2019. Falling interest rates worldwide usually have a positive impact on Gold.

Rising Geopolitical Tensions

Rising tensions in the Middle East have also kept investors concerned, which made them seek safety with Gold. Gold in particular is considered a major safe- haven asset, which tends to rise in value in times of distress. Tensions between the US and Iran and Iran and the UK have recently increased demand for Gold due to fears over a possible escalation in the Persian Gulf. In addition to that, latest tensions on the Korean peninsula have also injected a dose of fear within the markets, which in turn, pushed investors toward the safe- haven gold. The ongoing saga with Brexit should not be overlooked either as growing uncertainties could also push investors away to safe- haven markets. Latest conflict between the nuclear powers Pakistan and India over Kashmir has also increased investors’ worries. In Italy, on the other hand, Deputy Prime Minister Mateo Salvini called for premature elections in a sign of government collapse, which is also increases the risk- off sentiment going forward.

Technical Outlook

The broader picture shows that Gold still has room to rise despite its recent run upwards of almost 7.00%, testing its highest rate in more than 6 years (1511.00) on Wednesday (August 7). The monthly chart below shows that Gold is trying to make up its mind around the rate of 1500 as the rally has stalled on Thursday (August 8). If gold happens to reestablish itself above the rate of 1500, its bull run could extend all the way up to Resistance 1 of 1550.00, which was last tested in April 2013.

The Monthly Relative Strength Index, however, shows that Gold has been lately overbought as the index breached above its overbought threshold of 70.0. If the short- sellers recognize that as an opportunity, a short- term downward correction could occur, which would bring Gold below the mark of 1500.00, and moreover, it could approach Support 1 of 1455.00.

Pivot Point:

1500.00

Resistance 3:

1630.00

Resistance 2:

1590.00

Resistance 1:

1550.00

Support 1:

1455.00

Support 2:

1430.00

Support 3:

1400.00


Graph: (Gold, Monthly)

Example of calculation based on weekly uptrend direction for 1.00 Lot*

Pivot Points

Resistance 3

Resistance 2

Resistance 1

Support 1

Support 2

Support 3

Profit or loss in $

13,000.00

9,000.00

5,000.00

-4,500.00

-7,000.00

-10,000.00

Profit or loss in €***

11,612.64

8,039.52

4,466.40

-4,019.76

-6,252.96

-8,932.80

Profit or loss in £***

10,712.64

7,416.44

4,120.25

-3,708.22

-5,768.34

-8,240.49

* 1.00 lot is equivalent of 100 units
*** Calculations for exchange rate used as of 8:16 a.m. (GMT +1) 09/08/2019
Fortrade recommends the use of Stop-Loss and Take-Profit, please speak to your Senior Account Manager regarding their use.
**** Please, consider closing your position in profit, even if it is lower than suggested one
***** Trailing stop technique can protect the profit – Ask your Senior Account Manager for more details

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