Fundamental Overview
The global stock market rout didn’t spare gold as the precious metal fell alongside equities although on a much lesser scale. There's a common misconception with gold. People think it's a safe haven in crises times. But history suggests otherwise. If you look back at the most recent recessions, you will notice that gold sold off alongside the stock market. It's not a protection against a market selloff.
When there's a tightening in financial conditions stemming from an aggressive stock market selloff, widening credit spreads and recessionary fears, then all correlations go to one. The best times for gold is when the central bank cuts interest rates and the market prices in better growth ahead.
But the absolute best time though is during stagflationary expectations which we had in the past weeks and months. Those expectations got crushed by the tariffs announcement as it was so bad that the expectations switched to price in a recession.
We are now having a tightening in financial conditions and this is going to weigh both on growth and inflation despite the expectations of more inflation from tariffs. In fact, market-based inflation expectations are going down now.
The risk of more inflation could come only if the central banks start to ease aggressively and the current tariffs remain in place, in which case, gold will rally hard. Conversely, if the central banks don't ease fast and the markets continue to sell off, then we will just get a recession and potentially deflation which is a byproduct of such crises and in this case, gold will collapse.
Of course, this doesn't take in consideration what happens with tariffs but an easing in fears and de-escalation should give gold a boost, while further escalation is likely to weigh more on the precious metal as it would increase recessionary fears.
Gold Technical Analysis – Daily Timeframe
On the daily chart, we can see that pulled all the way back to the major trendline around the 2957 level. This is where the buyers piled in with a defined risk below the trendline to position for a rally into new all-time highs. The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets into the 2832 level next.
Gold Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have also a key resistance around the 3057 level. From a risk management perspective, the sellers will have a better risk to reward setup around the resistance to target a break below the trendline. The buyers, on the other hand, will want to see the price breaking above the resistance to increase the bullish bets into new highs.
Gold Technical Analysis – 1 hour Timeframe
On the 1 hour chart, there’s not much we can add here as we could remain stuck in a range between the 2957 support and the 3057 resistance. Nonetheless, the market participants will likely lean on the levels to position for the opposite moves and increase the bets on breakouts. The red lines define the average daily range for today.
Upcoming Catalysts
This week is all about tariffs news ahead of tomorrow’s deadline, so the data won’t matter much. Nevertheless, we will get a couple of notable data releases. On Thursday, we get the US CPI report and the latest US Jobless Claims figures, while on Friday we conclude the week with the US PPI and the University of Michigan Consumer Sentiment survey.
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This article was written by Giuseppe Dellamotta at www.forexlive.com. Read More Details
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