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. This
is where the buyers piled in with a defined risk below the trendline to
position for a rally into new all-time highs. 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. Nevertheless, we will get a couple of
notable data releases
