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19.08.201911:10 Forex Analysis & Reviews: Gold tests $1,500 support, threat of deeper correction

Long-term review
This information is provided to retail and professional clients as part of marketing communication. It does not contain and should not be construed as containing investment advice or investment recommendation or an offer or solicitation to engage in any transaction or strategy in financial instruments. Past performance is not a guarantee or prediction of future performance. Instant Trading EU Ltd. makes no representation and assumes no liability as to the accuracy or completeness of the information provided, or any loss arising from any investment based on analysis, forecast or other information provided by an employee of the Company or otherwise. Full disclaimer is available here.

Gold was unable to make headway on Friday with support sapped by a net improvement in risk appetite and a firm dollar tone. Net losses continued on Monday with spot gold dipping to test the $1,500 per ounce support level.

There is a strong likelihood that the Federal Reserve and ECB will ease monetary policy in September. The ECB is likely to announce a substantial package of interest rate cuts and government bond purchases while the Federal Reserve is likely to announce a further 0.25% rate cut.

Interest rate cuts will have a mixed impact on gold as the potential beneficial impact of lower short-term yields would be offset by a decline in demand for safe haven gold amid hopes for an improvement in risk conditions.

The net impact on global yield curves will deserve attention as a steeper yield curve would be an important indicator of waning fears about the global outlook and gold would be likely to lose favor with investors.

If yield-curve inversion intensifies, however, there will be renewed defensive gold demand.

Central bankers and policymakers will be anxious to provide reassurance and the most likely outcome is an easing of net fears, at least in the short term.

As usual, President Donald Trump remains a crucial wild card. There is a significant risk that he will see the global downturn as increasing Chinese and EU vulnerability. There is also a risk that Trump will look to intensify trade wars in an attempt to force concessions. In this situation there would be a fresh surge in demand for defensive assets including gold.

CFTC data recorded a small decline in non-commercial gold positions, but the total remains close to 35-month highs, maintaining the risk of sharp long liquidation if there is a net improvement in global risk appetite. Longer-term gold fundamentals remain attractive and there is still a strong case for buying on dips.

Exchange Rates 19.08.2019 analysis

Tim Clayton
Analytical expert of InstaForex
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