Risk-On Leaves Gold Flat; Silver, PGMs Up

January 19th, 2016 by

The global markets were eyeing a rebound on Tuesday, even if only temporarily. Stock markets across the international spectrum were solidly in the green, signaling a swing toward risk-on.

dice-risk-gamblingThe world markets followed the Shanghai Composite into the green, as the main Chinese stock index gained 3.2% overnight. In response, European markets were solidly in the green, as were U.S. indices (to a lesser extent).

This left gold mostly flat, just 0.2% lower at $1,087/oz after closing less than $2 per ounce lower in sparse trading on Monday. (U.S. paper markets were closed for the Martin Luther King Jr. Day holiday.) Meanwhile, silver was actually up 1.2% to around $14.20/oz. The Platinum Group Metals gave up early morning gains to trade just above unchanged, as well.

Bad News Is Good News?

The risk-on sentiment permeating the markets on Tuesday is somewhat surprising, which would lead to the assumption that it is probably fleeting. There is plenty to be bearish about across the global economy, beginning principally with developments in China.

china-flag-shanghaiThe needed restructuring of the Chinese economy that has supposedly been undertaken is showing signs of inconsistency. Uncertainty about how the Communist Party will choose to steer the ship—and whether or not it will ween itself off of intervening in the stock market and the foreign exchange value of its currency—has left investors worried and hesitant. Even if Tuesday proves to be a positive day for equities, the drivers of safe haven flight from risky assets are fundamentally the same as they have been to start 2016.

The People’s Republic has been seeing a sharper drop in both imports and exports over the last several months, causing a ripple effect across the commodities sector and various emerging markets. There are so many risk factors across this once-booming part of the world economy that traders and investors are right to be spooked in 2016.

Global Contagion

global crashWe are seeing an official recession in major emerging markets that looked very promising just a few years ago, such as Russia and Brazil. Both the slowdown in China and the commodities downturn are killing these pieces of the puzzle. Combined with the utter collapse of the crude oil market and a persistently strong dollar, the prospects for global GDP growth have consistently gotten worse. The IMF expects China to report its slowest GDP growth in 25 years, which is projected to significantly drag down global growth. As one domino falls, others across the globe follow suit.

The dollar was slightly higher on Tuesday at 99.1 on the DXY, while the crude oil benchmarks continued to trade around $29 per barrel. The overall shakiness of the world’s economic outlook spurred some demand for Treasurys, sending 10-year T-note yields down to 2.04%.

Technical Overview

The near-term support levels for the gold price are currently at $1,085/oz and then $1,077/oz below that. Meanwhile, resistance remains firmly at $1,094/oz and the psychologically important $1,100/oz level.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

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