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Gold In Safe-Haven Seat, With Ride To $1,830 Looking Likely

By Barani Krishnan/Investing.comCommoditiesAug 02, 2022 04:11AM ET
www.investing.com/analysis/gold-in-safehaven-seat-with-ride-to-1830-looking-likely-200627936
Gold In Safe-Haven Seat, With Ride To $1,830 Looking Likely
By Barani Krishnan/Investing.com   |  Aug 02, 2022 04:11AM ET
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  • From Pelosi in Taiwan to plummeting dollar and yields, gold has reasons to rally
  • Last week’s gain of 2.2% was gold’s best week in 4 months
  • Notion of peaking Fed rate hikes could send gold to interim high of $1,830

Bloomberg cites the geopolitical turbulence associated with Nancy Pelosi’s trip to Taiwan as the reason for gold's strength on Tuesday. Others point to the incessant drone of US recession talk, the plummeting dollar and US bond yields.

Whatever the driver, gold is once again in the safe-haven seat as the yellow metal’s faithful—as well as those who’d ignored it for some time—hop on for the ride as the Dollar Index and the 10-Year Treasury note rapidly go down the tube.

​​Gold has shown encouraging strength in holding on to the higher end of $1,700 since the reading on second quarter US gross domestic product on Friday that technically placed the economy in a recession.

The yellow metal gained 2.2% last week for its best weekly performance in four months after Federal Reserve Chair Jerome Powell said the central bank couldn’t predict if it’ll hold on to the aggressive rate hikes it had conducted since March to beat inflation, as the US economy itself was sliding.

Spot Gold 4 Hour
Spot Gold 4 Hour

All charts by skcharting.com, with data powered by Investing.com

James Stanley, who blogs on precious metals at Daily FX, said gold was showing a distinctive “behavior change” since last week. He adds:

“Longer-dated Treasury yields are diving even as the Fed is hiking short-term rates. The big question at this point is one of continuation and this seems to tie in with the same macro questions that are pertinent in a variety of asset classes at the moment.”

Ed Moya, analyst at online trading platform OANDA, concurred, saying:

“Gold can’t stop climbing higher now that a peak in Treasury yields has been made. King dollar lost its mojo and that has been great news for the yellow metal.”

Moya said deteriorating macroeconomic data along with the weaker dollar had pulled bullion higher.

“Technical levels matter here and gold will need a fresh catalyst to break the $1,800 level. If the dollar pullback continues, that might be enough for gold’s rally to extend. The dollar days are not numbered, as the interest rate differential will widely remain in the greenback’s favor, as will US growth prospects, and safe-haven flows as Europe rushes towards a recession.”

In Tuesday’s Asian trade, gold was headed for a fifth straight day of gains.

By 1:45 PM in Singapore (1:45 AM in New York), gold’s benchmark futures on New York’s COMEX, December, was at $1,788.30, up 60 cents on the day. It earlier reached a session high of $1,797.20. On July 21, COMEX gold had plumbed an 11-month low of $1,678.40.

The spot price of bullion meanwhile, reached a near one-month high of $1,780.59.

Bloomberg cited Pelosi, who would arrive later Tuesday in Taiwan, as a reason for gold’s climb on Tuesday. The Speaker of the US House would be the most senior US politician to visit Taiwan in a quarter of a century. Beijing views Taiwan as its territory and has warned of consequences, including military action, if Pelosi’s trip goes ahead.

Gold is supposed to be a hedge against inflation but it has not been able to hold up to that billing for most of the past two years since hitting record highs above $2,100 in August 2020. One reason for that has been the rallying Dollar Index, which is up 11% this year after a 6% gain in 2021.

In recent days, however, the dollar, a contrarian trade to gold, has been doing the exact opposite to the yellow metal. The Dollar Index, which pits the greenback against six other major currencies, hit a near three-week low of 104.92 on Tuesday, after a two-decade high of 109.14 on July 14.

US bond yields also fell, with the benchmark 10-year Treasury note hitting a five-month low of 2.52%.

Gold’s climb this week was also aided by Chinese factory activity, which shrank in July amid a fresh round of COVID-related lockdowns.

China is the world’s No. 2 economy and a prolonged economic downturn there is likely to weigh on global growth. Beijing’s official purchasing manager’s index fell to 49.0 in July, indicating a contraction, from 50.2 in the previous month.

US manufacturing PMI released on Monday was a notch better at 52.8 versus 53 for June. The accompanying note from the Institute for Supply Management did not help sentiment. “Growing inflation is pushing a stronger narrative around pending recession concerns. Many customers appear to be pulling back on orders in an effort to reduce inventories,” the institute said.

Monday’s news out of the rest of Asia wasn’t any better, as South Korea's factory activity fell for the first time in almost two years and Japan saw its slowest growth in activity in 10 months.

Manufacturing is already in contraction in the Eurozone owing to the acute energy crisis and accompanying inflation problem, and those factors also appear to be hitting the consumers as German retail sales slumped to the biggest annual drop since the country started collecting pan-German data in 1994.

Despite all these factors aiding gold’s standing as a safe haven, bullion’s ability to break above $1,800 and progress from there might remain a greater challenge than thought, analysts who watch the space said.

″Bullion bulls are waiting to see if the coast is clear for another leg up, making sure expectations for a less-aggressive Fed are indeed rooted in reality,” Han Tan, chief market analyst at Exinity, said in remarks carried by Reuters.

“Like the Fed, gold’s next move may be data dependent."

Spot Gold Daily
Spot Gold Daily

So, where is gold going?

Most likely to $1,830, before a stop emerges, said Sunil Kumar Dixit, chief technical strategist at skcharting.com.

“The noise-free weekly chart for gold shows no significant resistance before the 100-week Simple Moving Average of $1830, which is in close proximity to 38.2% Fibonacci level.”

Dixit, who uses the spot price of gold for his outlook, said bullion’s weekly Relative Indicator has bounced from 32 to 43, while its stochastics at 40/29 continues with a bullish crossover for the third week in a row.

Spot Gold Weekly
Spot Gold Weekly

From a short-term perspective, gold’s momentum seems to have paused briefly, approaching the 50-Day Exponential Moving Average of $1,784 after breaching the above-200 Simple Moving Average of $1,769 on an intraday 4-hour chart, Dixit said. He added:

“Strong momentum can take a break if prices drop below $1,769, pushing towards the middle Bollinger Band of $1,762 and the 50-day EMA of $1745.”

“Failure to hold above $1,745 and the ascending trend line support of $1,740 can extend the decline to the critical 100-day Simple Moving Average of $1,728, which is a turning point of momentum with potential of a bearish reversal.”

“At the same time, if ongoing events (Pelosi visiting Taiwan) trigger safe haven appeal, a surge towards $1830-$1835 should not be a surprise.”

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold positions in the commodities and securities he writes about.

Gold In Safe-Haven Seat, With Ride To $1,830 Looking Likely
 

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Gold In Safe-Haven Seat, With Ride To $1,830 Looking Likely

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Comments (6)
Pete Heise
Pete Heise Aug 02, 2022 11:42AM ET
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Appreciate your take on this. Anxious to see how much of a catalyst the macro environment provides with a "fed pivot" somewhat priced in over the next 6-9 months. Kind of takes the big steam out of the $$.
Barani Krishnan
Barani Krishnan Aug 02, 2022 11:42AM ET
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Hello Pete, yes, prompts to wonder doesn't it, how much more fizz there's left to the dollar. I reckon that by December, DXY could be around 100, maybe lower. Let's see.
John Cerniuk
John Cerniuk Aug 02, 2022 11:42AM ET
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Barani Krishnan
Barani Krishnan Aug 02, 2022 11:42AM ET
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John Cerniuk  Unless the euro situation reaches new depths; then that will keep the dollar unnaturally inflated -- as always! :)
Vatsal Patel
Vatsal Patel Aug 02, 2022 10:46AM ET
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Gold will indeed breach $1800 soon. Jobs data are getting worst every session. US GDP is taking down turn. So, FED won't be able to raise faster. All in all, Gold has to rally. And because of that, stocks should take retreat.
Barani Krishnan
Barani Krishnan Aug 02, 2022 10:46AM ET
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Thanks, Vatsal. Comex gold's December did breach $1800 by 9:00 am ET. It has come off those highs to hover under $1,800 again as the market blew off some froth at the top. But as Dixit said in this morning's revised outlook, the game to the upside isn't over yet till it hits $1,830-$1,835 at least.
SunilKumar Dixit
SunilKumarDixit Aug 02, 2022 10:46AM ET
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Barani sire. In fact, 1830-1835 should act as a turning point. If this zone is decisively taken, Gold bears are going to have a tough time covering their naked shorts. Similarly, a crude rejection from the threshold may give bears one more chance to rejoice aiming for a deeper correction.
Barani Krishnan
Barani Krishnan Aug 02, 2022 10:46AM ET
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SunilKumar Dixit  Look forward to both :)
John Cerniuk
John Cerniuk Aug 02, 2022 9:57AM ET
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recession time! FED will they print more money? FEDs hands are tied this time gold has a bright future
Barani Krishnan
Barani Krishnan Aug 02, 2022 9:57AM ET
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Indeed, John!
ajay jayaraj
ajay jayaraj Aug 02, 2022 8:10AM ET
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stop wasting ur time reporting on gold....no body cares
Show previous replies (1)
SunilKumar Dixit
SunilKumarDixit Aug 02, 2022 8:10AM ET
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Ajay jayraj. Most of the traders keep a close watch on Gold and Dollar price and monitor trends. I can understand if it doesn't matter for you. But then... Who cares if it doesn't matter for you lol?
Edward Chong
Edward Chong Aug 02, 2022 8:10AM ET
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i care. and many traders care too . do yourself a favour.
John Cerniuk
John Cerniuk Aug 02, 2022 8:10AM ET
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ajay you must be 1 of those people that dont care about money either..lol
Barani Krishnan
Barani Krishnan Aug 02, 2022 8:10AM ET
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Edward Chong  / John, thanks for your perspectives
SunilKumar Dixit
SunilKumarDixit Aug 02, 2022 8:10AM ET
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John Cerniuk. You said it right. It's all serious business here and people do care about it.
Phil Kimmel
Phil Kimmel Aug 02, 2022 8:07AM ET
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Gold? Seriously? Whst a joke! The worst investment in the last twenty years!
Barani Krishnan
Barani Krishnan Aug 02, 2022 8:07AM ET
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This is an age-old commodity that's the only form of real alternative to paper money (compared to zero-inherent value cryptos). The sheer manipulation of its price -- to prevent it from reaching it's true value, which is possibly three times more than now -- is being told in the US courts now at the trial of the former JPM metals traders. You really need to read more before you comment about gold, Phil.
SunilKumar Dixit
SunilKumarDixit Aug 02, 2022 8:07AM ET
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Phil Kimmel. The real safe haven and store of value status belongs to Gold alone, through ages. This fact remains indisputable. Yes there are occasions when governments in collusion with financial institutions work to keep Gold suppressed and the recent past was hardly any exception.
Jack Drummond
Jack Drummond Aug 02, 2022 7:50AM ET
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Yes. Also sheer force of will.
Barani Krishnan
Barani Krishnan Aug 02, 2022 7:50AM ET
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True, Jack.
 
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