Gold market overview

Gold market overview

Gold prices dropped sharply this Monday to $1218 (the lowest level in 2 months). The relative strength of the USD and stronger equities and higher yields kept traders away from precious metal.

The rally in equities and yields has started last week following a hawkish shift in tone among key central banks. The heads of major banks admitted that they need to change their dovish postures and partially withdraw monetary stimuli prematurely, before the extreme hike in inflation rates. This spurred a global-wide selling in government bonds and delivered a sudden jolt higher to yields. The Federal Reserve has already started to put into life their plans by lifting its benchmark interest rates, signaling the start of the QE wind down.

On Tuesday, the bullion ticked higher after the Reserve Bank of Australia failed to show its intention to remove some monetary accommodation any time soon. The Aussie and some of the government yields were sold quickly upon the publication of the board’s statement. If other central banks fail to deliver on their recent promises (changing their dovish postures to hawkish ones) as well, the gold prices will start rising again. The Bank of Canada is coming up next to deliver its rate and monetary policy statements (on June 12). A “no change” decision will be disappointing for Loonie buyers but probably the balm for the bullion traders.

Another trigger for gold prices was the escalation of the conflict in the Korean peninsula. Gold is a well-known safe-haven asset that tends to appreciate in times of crises, political and military disturbances. North Korea successfully tested its new ballistic missile capable of carrying a larger and heavier nuclear warhead. South Korean and American troops have recently fired their own missiles into the waters off South Korea to demonstrate their deep strike precision capability. A de-escalation of tensions between the two Koreas will probably divert traders from buying non-risky but low-return assets.

The prime minister of Japan Abe seeks to discuss this conflict with Russian and Chinese leaders at G-20 summit (which starts on Friday) and force them to make an effort to appease North Korea.

In the recent session, the gold ticked lower once again. Now it is trading near 1222.50. From here it may slide lower towards the supports at $1215 (two-month low) and at $1197 (March 15 low). The immediate resistance can be found at $1235. Its break will allow us to touch $1250 level.  

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