Trade deal optimism bleeding-out gold prices

Trade deal optimism bleeding-out gold prices
  • Gold prices plummet as US and China pending trade deal excites the market
  • China is planning to lift penalties on intellectual property, sinking gold pricing
  • Gold has been thriving in the midst of uncertainty in the stock markets

The price of gold had been dipping for the better part of Tuesday, and at the time of writing this report, it had sunk -0.32% to settle at $1,454.12 down from $1,462.19. The drop comes in the wake of a pending trade deal and a weakening euro, challenging cloud tops on the Dollar Index Chart (DXY).

The past few weeks have seen the precious metals take hits from both sides; the risk-on sentiment has boosted stocks and the US yields are higher. As the European growth slows down, the DXY is supported higher in the FX flow.

Also, the US dollar is being boosted as a result of the Fed bank’s decision not to cut interest rates any further. For the time being, the Sino/US trade deal negotiations are a key geopolitical driver and a number of positive headlines are stimulating investors’ risk appetite which is having a negative effect on gold.

 The move by China to lift the ban on intellectual property violation boosted the market optimism sending US stocks to new highs. Similarly, the S&P 500 was up 0.62% and the DJIA up 0.51% on Tuesday.

The trade optimism also rubbed off on the European markets with the FTSE 100 climbing a further 0.9% even with the low demand for the pound while the DAX rose by 0.6%.

But Comex’s Gold delivery on the December futures contract fell 0.5% or %6.70 to reach $1,456.9/oz.

According to TD Securities’ analysts: “loss-aversion remains a tough sell for a market that is looking forward to the potential for 2020 reflation, with a Fed that is on pause. Investors that look past the noise, however, can expect the yellow metal to offer optionality to further easing while also allowing money managers to benefit from a trend of lower real rates”. Analysts at ANZ concluded saying, “the asymmetry in the US central bank’s reaction function suggests that while they may cut rates, they are far from hiking and are likely to allow inflation to creep higher, thereby suppressing real rates and maintaining the allure of gold in a portfolio”. 

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