Tuesday was largely a case of “more of the same” in the markets. The spotlight has been split between economic slowdown in China; speculation about stimulus programs in Europe, Japan, and even the U.S.; and ongoing power struggles in the Middle East. Each of these factors are contributing to stronger demand for gold amid worldwide uncertainty.
Spot gold was up 0.5% on Tuesday morning, trading at $1,114.50/oz. The yellow metal approached a 3-month high in trading in Asia before this morning’s opening bell in New York. Meanwhile, silver and the Platinum Group Metals each advanced better than 1%.
Central Bank Policy
A persistent driver of volatile market sentiment has been the big unknown elephant in the room: Will the world’s major central banks engage in more economic stimulus? The European Central Bank (ECB) has certainly indicated as much, and many believe that the Bank of Japan (BoJ) and even the Federal Reserve will follow suit.
There is certainly less momentum for a gradual tightening of monetary policy in the U.S. with the widespread market rout. The futures market for the federal funds rate indicates less than 30% odds that the Fed decides to increase rates again in March, and most experts have cut their projections for total rate hikes in 2016 from four to just two.
Turmoil In Asian Theater
Although the pain in the equities markets has been felt universally, it all tends to begin with Asia. One of the consistent drags on oil prices has been the slowdown of the Chinese economy. Even more pressing is the fluctuations of the country’s leading stock market. The Shanghai Composite tumbled another 6.4% overnight, pushing the benchmark mainland index to a 13-month low. It has lost 22% of its value year-to-date.
The prospect of a quickening pace of capital outflows from China are spurring gold-buying as a hedge. This has combined with the approaching Chinese New Year (February 8th) to boost the country’s gold purchases. Monthly imports of gold through Hong Kong in December reached their highest since 2013 at over 110 metric tonnes. In fact, December imports were nearly double the previous month and, similarly, about twice as much year-on-year.
The gold price looks to string together consecutive trading days in positive territory on Tuesday as the precious metals continue to build upward momentum. Gold is now solidly above its 100-day moving average of $1,105/oz, with the key 200-DMA not far above at $1,130/oz.
This places support at the 100-DMA and then $1,100/oz below that. The 200-DMA represents an important resistance point; any close above this level would be a strong sign that the gold price found its bottom and could be poised to ascend. Resistance will also be seen first at $1,117/oz, the highest the gold price has climbed (if only briefly) in 12 weeks.
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.