Gold prices jumped on Tuesday, moving towards a three-month high record and repeated that scenario on Thursday, as a selloff in stock markets globally caused safe-haven demand for gold among other instruments while political and economic uncertainties kept rising. As per media, the collapse of high tech shares sparked the widest decline in a day, on Wall Street for roughly 7 years, eradicating previous profits posted in the current year.
Analysts point out, that after the wide drop of global equities, investors seem to be looking for safe-haven protection. Efforts are being made in order for diversification to occur in investor’s portfolios and in that sense gold is considered as an investment of value maintenance, with the bears not be willing to leave the stock markets.
The overall effect on gold prices in such a scenario could cause the upside potentials to expand. Once again, analysts point out, that if the situation continues and bullions prices continue their upward movement, they could breach the $1,245 level, which could spark a number of short covering positions, pushing prices even higher.
However, concerns seem to be far wider than global equities. Worries about the overall effect of the US-Sino trade war, the confrontation of Rome with Brussels over Italy’s budget, the deadlock in the Brexit negotiations which prolongs uncertainty over the issue, the looming US sanctions against Iran, the upcoming midterm elections in the US and to a lesser extent the recent tensions in the US-Saudi relationships could have created an overall environment which could be magnifying the effect and the need for a safe haven shelter. Be advised that the above, could cause the precious metal to be even more precious, as Gold was always considered as an alternative investment instrument in times of economic and political turbulence.
Investors looking for safety were not the only ones fueling gold’s prices though. Several Central banks seem poised to increase their purchases of bullion for 2018 and it could prove to be their first time in a number of years, with mainly central and eastern European, as well as Asian countries seeking to achieve for diversification for their respective reserves.
According to media, the central bank’s summed up gold net acquisitions, are expected to rise to 450 metric tons this year, if compared to previous year’s 375 tons. Given that there are practically only two month’s left for year-end, chances are for the risks to be tilted to the upside, as analysts could raise their projection rather than lower them, as they consider central banks to generally be more interested in purchases.
Central banks of Poland and Hungary added substantially to their gold assets for the first time in a number of years. Considering the purchases of the Hungarian central bank as a strategic move, incremental additions of gold, the Polish central bank has made, over three months could be suggesting that this policy could linger on, according to analysts. However, one of the biggest buyers could be Russia’s central bank. Moving further to the east, Kazakhstan and Mongolia can also be viewed as sizeable buyers.
As an epilogue, we would like to remind our readers, that as gold is denominated in US Dollars, it could be safely assumed that the bullion price per ounce is also heavily dependent on the course of the greenback. It should be noted that the dollar’s safe haven role could be initially be supported by growing US Treasury bond yields, in which scenario the USD could be supported but as uncertainty persists for the US economy per se, markets may be persuaded to seek alternative investments, such as gold.
XAU/USD 4Hour chart below
- Support: 1,230.00 (S1), 1,220.00 (S2), 1,210.00 (S3)
- Resistance: 1,239.50 (R1), 1,249.00 (R2), 1,258.00 (R3)
After gold’s prices were elevated above the 1,220 (S2) resistance level (now turned to support) on the 11th of October, the precious metal’s prices had another jump on the 23rd of the month breaking the 1,230 (S1) resistance line (now turned to support) and seem to be confined between the 1,230.00 (S1) support line and the 1,239.50 (R1) resistance line in the last 48 hours.
Should the bullion find fresh buying orders along its path, gold’s prices could be pushed even higher and we could expect it to break the 1,239.50 (R1) resistance line and aim, if not breach the 1,249 (R2) resistance level, opening the way for the 1,258 (R3) resistance area.
On the other hand, if gold comes under the market’s selling interest, we could see it breaking the 1,230 (S1) support line and aim the 1,220 (S2) support hurdle. Should that be broken we could see the precious metal landing on the lower grounds of 1,210 (S3) support zone.
All trading involves risk. It is possible to lose all your capital
This information is not considered as investment advice or investment recommendation but instead a marketing communication. This material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.