Trade deal optimism bleeding-out gold prices

on Nov 27, 2019
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  • 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

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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).

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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”. 

Commodity