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Gold - 01/10/2019

Micro Analysis

01 October, 2019

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

OCTOBER TREND: UP

  • US Democrats launched an impeachment inquiry in President Donald Trump

According to Reuters, Democrats in the U.S. House of Representatives on September 24 launched a formal impeachment inquiry into President Donald Trump, accusing him of seeking foreign help to smear Democratic rival Joe Biden ahead of next year’s election. The inquiry ensures a partisan fight in Congress and on the presidential campaign trail in coming months, energizing the most committed Republican and Democratic supporters and overshadowing the Democratic race for the nomination to face Trump in the November 2020 election. According to the House Speaker Nancy Pelosi, Trump had pressured Ukrainian President Volodymyr Zelenskiy in a July 25 phone call to investigate Biden, the Democratic presidential front-runner, and his son Hunter, who had worked for a company drilling for gas in Ukraine.

The U.S. House of Representatives’ impeachment probe into President Donald Trump intensified in October, as Donald Trump raged about the inquiry and news reports suggested he had used additional diplomatic channels to go after his adversaries. Three House committees said a subpoena for documents had been sent to Trump’s lawyer Rudy Giuliani. Giuliani said in a tweet that the subpoena raised legal issues including attorney-client privilege. Democrats have also issued a subpoena to Secretary of State Mike Pompeo for documents concerning contact with the Ukrainian government. According to them, U.S. Secretary of State Mike Pompeo took part in the July 25 phone call between Trump and Ukrainian President Volodymyr Zelenskiy in which the matter was discussed.

  • US Federal Reserve cut the benchmark interest rate another 25 basis points to 2.00%. What is next?

The US Fed cut the benchmark interest rate on Wednesday (September 18) by 25 basis points as expected, pushing it down to 2.00%. According to their statement, the US Fed is not expected to cut rates anymore in 2019, but the markets hold a different view. In fact, Bloomberg suggests that the markets hold a probability rate of 70.9% that the US Fed will cut the benchmark interest rate once again by at least 25 basis points by the end of 2019. It is worth noting that the markets have been right twice for the past two meetings (July and September). If this view prevails across the markets, along with the expectations that other central banks such as the Bank of Japan will soon increase stimulus too, we can then expect gold prices to regain strength and move higher over the period ahead. It is worth to note that the Reserve Bank of Australia cut its cash rate once again on October 1 to bring it down from 1.00% to 0.75%. It was their third cut in 2019. The US Federal Reserve is set meet again on October 30.

  • High volatility is expected in October. Will Gold benefit from expectations that investors will be hedging against market volatility?

Many analysts believe that October will be very volatile for the markets, which could include big swings within stock markets. According to Goldman Sachs, history suggests that October’s stocks market volatility has been on average higher by 25% than the rest of the year. Of course, previous outcomes do not mean that this will repeat in the future, but it is certainly an important indicator for what could be expected. It is worth noting that the third- quarter US Earnings Seasons begins on October 15, which could additionally increase the volatility within the financial markets. Bearing in mind that heightened volatility could increase the overall risk to the markets, investors might again opt for investments in safe- haven assets, as they will seek protection from potential stock market swings. Gold could rise in demand over that period ahead, which could certainly support Gold prices.

Since 2010, Gold has been on average exerting HIGH vs. LOW volatility of 5.93%. In absolute terms, gold has recorded an average intra- month increase of 47.68 dollars (HIGH vs. OPEN), with a highest absolute increase (HIGH vs. OPEN) recorded in 2011 ($128.84). The average High versus Low volatility, expressed in absolute terms has been recorded at 80.85 dollars, while the highest High versus Low volatility was recorded in October 2011 ($156.44).

  • U.S.-China trade talks will resume on October 10

U.S. Treasury Secretary Steven Mnuchin said that he and U.S. Trade Representative Robert Lighthizer would meet with Chinese Vice Premier Liu He for trade talks on October 10. Although both sides will look for progress in October, there are analysts who believe the trade war saga between the largest economies in the world will most likely continue beyond October’s talks. Some media reports in China said that China is in no rush to make a deal with the US, which could quite easily reject US demands in October. On the other hand, Trump’s administration is more willing to make a deal with China as 2020 Presidential Election is approaching, which in turn could lead to a bad deal for the US.

  • U.S. Employment Market Data for September as near- term risk for Gold (October 4 at 13:30 GMT+1)

Job growth continued at a tepid pace in August, with nonfarm payrolls increasing by just 130,000 thanks in large part to the temporary hiring of Census workers. The increase fell short of Wall Street estimates for 150,000, while the unemployment rate stayed at 3.7%, as expected. Wage growth remained solid, with average hourly earnings increasing by 0.4% for the month and 3.2% over the year. If data on October 4 shows stronger employment market in September, the markets could be expected to lower down their expectations for another interest rate cut by the US Fed in 2019, which could have negative impact on Gold.

Pivot Point:

1450.00

Resistance 3:

1660.00

Resistance 2:

1600.00

Resistance 1:

1530.00

Support 1:

1380.00

Support 2:

1320.00

Support 3:

1265.00

Example of calculation based on weekly direction for 1.00 Lot*

Gold

Pivot Points

Resistance 3

Resistance 2

Resistance 1

Support 1

Support 2

Support 3

Profit or loss in $

21,000.00

15,000.00

8,000.00

-7,000.00

-13,000.00

-18,500.00

Profit or loss in €***

19,270.47

13,764.62

7,341.13

-6,423.49

-11,929.34

-16,976.37

Profit or loss in £***

17,098.47

12,213.19

6,513.70

-5,699.49

-10,584.77

-15,062.94

* 1.00 lot is equivalent of 100 units
*** Calculations for exchange rate used as of 8:43 a.m. (GMT +1) 01/10/2019
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**** Please, consider closing your position in profit, even if it is lower than suggested one
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