Gold is up another 0.9% today as buyers stay in control
With gold having shook off its status as a proxy dollar trade, it has regained its previous allure of being a haven asset in times of uncertainty and risk aversion. With global trade tensions reignited in the past week, gold has been a standout performer from around $1,275 to now inch above $1,316 and also rise above the 100-day MA (red line).
That puts buyers back in the driver’s seat and with risk sentiment still cautious and unnerving, there’s still potential for bullion to post more gains as resistance is next seen only around $1,326 before the February high around $1,346.80 comes into play.
But besides the theme of risk aversion and haven flows, what else is next for gold beyond global trade tensions?
I reckon the next spot to watch will be the Fed. A key barometer for the global economy is how confident is the Fed in maintaining their current policy stance. Should they start shifting towards sending a message of rate cuts, expect that to have significant reverberations throughout emerging markets and risk assets in general.
In essence, the Fed signaling rate cuts can be argued as a possible tipping point for which traders will believe that an economic downturn is coming. In that regard, a weaker dollar and flows out of emerging markets should promote further strength in gold.
As such, global trade tensions will keep gold underpinned for the time being but for the commodity to really make its next run higher, that conviction lies with the Fed.