On Wednesday morning, gold broke through stingy resistance, advancing $13 per ounce thanks to renewed safe haven fears about the stock and bond markets. This vaulted gold above the key $1,100/oz level, with the yellow metal trading near $1,101.50/oz by 9:30 am ET.
Spot silver also added 10¢ per ounce, moving just above $14.20/oz. The Platinum Group Metals did not respond to the risk-off sentiment, as both platinum and palladium slid lower.
Return of Risk Aversion
As expected, Tuesday’s momentary exuberance in stocks was precisely that—temporary. The broader underlying narrative of the weakness of the global markets once again shone through on Wednesday thanks to more bad economic data being reported.
In the United States, housing starts (permits to build new homes) fell by 2.5% in December. For the entire year, however, new home construction was the highest since 2007. Meanwhile, the consumer price index (CPI) fell by 0.1% during the final month of the year. It seems unlikely for consumer prices to break out of their deflationary trend anytime soon due to crude oil prices wavering at 12-year lows.
Crude oil traded below $28 per barrel early in the morning on Wednesday. Meanwhile, the dollar was flat on the DXY index, registering right at 99.0.
Treasury yields are also at their lowest levels since October, with the 10-year Treasury yield hovering around 2.05%. These low yields indicate that safe haven flight into bonds has been strong, but the low yield also makes gold look more attractive by comparison.
More Woes for Stocks
Stock indices around the globe were sharply lower on Wednesday, with a sea of red across the board. These equities markets were each down between 1.25% and 3.75%, with virtually no one spared by the carnage. The world markets are on the precipice of plunging into a bear market (technically 20% below 52-week highs). $15 trillion in value has been erased from stocks around the world since the summer, and the significant losses for U.S. stocks in 2016 have pushed the three major indices to their lowest levels since August.
These losses for equities come on top of the International Energy Agency (IEA) suggesting that the supply glut in crude oil is here to stay, coupled with the International Monetary Fund (IMF) consistently downgrading its outlook for global GDP growth. The only bright spot for the global economy would seem to be India, which is expected to grow by better than 7% in both 2016 and 2017.
Markets will also keep an eye on the next policy meeting of the European Central Bank (ECB) coming up on Thursday. Added stimulus by central banks around the world is seen as supportive of gold. The Federal Reserve Open Market Committee (FOMC) begins its two-day January meeting next Tuesday.
With today’s surge, the gold price’s next big resistance hurdle is at $1,108/oz (the 100-day moving average), with $1,118/oz and $1,136/oz as targets above that. New support now appears to form around $1,095/oz and $1,097/oz.
According to CitiGroup, risk aversion and investors seeking safe haven should support higher gold price through first quarter of this year.
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.