Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
Access both platforms from your single Saxo account.
Gold focus turns to bond auctions and potential ECB taper
Ole Hansen
Head of Commodity Strategy
Summary: Gold's recovery following the early August collapse is showing signs of running out of steam after the price once again failed to penetrate an area of resistance towards $1835. With muted buying interest from money managers due to lack of momentum and diversification demand, the recent buying has instead been carried out by central banks, the physical centers in India and China as well as retail investors. Short-term focus turning to US bond auctions and Thursday's ECB meeting which may well spring a surprise.
Gold’s month-long recovery following the early August collapse is showing signs of running out of steam after the price once again failed to penetrate an area of resistance towards $1835. Precious metals jumped on Friday following a surprisingly weak US job report, which initially helped weaken the dollar, and while silver managed to break higher, gold’s attempt once again fell short, just like it has done on six previous occasions since mid-July.
While the timing of the Fed taper may have been delayed by the recent weakness in data leading the prospect for zero US growth in the third quarter, gold has for several reasons so far failed to capitalize on this emerging tailwind. First of all, the continued strength in global stocks reduces the need for diversification and secondly, the dollar has yet to break support following its recent upside rejection. In addition and despite the recent economic data weakness, a heavy treasury bond auction calendar combined with rising wage pressures has been sending bond yields higher, thereby further reducing the short-term prospects.
Real yields, currently around -1% is at risk of rising further but as we have mentioned in previous updates, the dislocation between gold and real yields this summer, could justify a 20-25 basis point rise in yields without negatively impacting gold to much. Whether or not that plays out remains to seen, but in our opinion it makes us believe the direction of the dollar, more than yield developments, should be the main short-term focus.
With gold struggling to move higher, silver has been allowed to claw back some the 15% it lost relative to gold since July. After hitting an eight-month high last month at 77.50, the XAUXAG ratio, which reflects the price of one ounce of gold measured in ounces of silver, dropped to 73.50 on Monday, before once again being bought with traders turning more defensive for the above mentioned reasons.
Speculators have in response to the recent recovery been adding length back in COMEX gold futures, but at 99k lots or 9.9 million ounces, the net long position is still only one-third of the 285k lots peak from February last year when gold traded around $1640. In silver, months of underperformance has seen the net-long slump to just 12.4k lots which represents a 75% drop since the latest peak in May.
With money managers mostly absent on the buy side in recent months, buying has instead been seen from key physical markets such as India and China, together with robust interest from retail consumers snapping coins from US Mint and Pert Mint at the fastest pace in years. Perhaps a sign that retail investors in some parts of the world being charged negative interest on their bank account have chosen gold as a hedge against rising inflation and inflation fears. In addition central banks around the world remains active buyers with the World Gold Council reporting net buying up until July of 347 tons compared with 263 tons for the whole of 2020.
From a technical perspective a close below the 200-day moving average, currently at $1810 may trigger renewed weakness, initially to $1793 and potentially as far as $1770. Apart from the technical outlook investors are likely to focus on Thursday’s ECB meeting, and the rising chance that bank may hit the taper button before the Federal Reserve. If it happens and EU bond yields jump it may support some additional gold-friendly dollar weakness against the euro, while on the other hand further raise the prospect for the Fed potentially acting sooner as well.
Overall we maintain a positive outlook for gold given the prospect for peak growth and no change in official interest rates for several quarters. For now, however, there is no reason to chase the market as long gold fail to cross over to the other side of $1835.
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: Will lower rates lift all boats in equities?
Peter Garnry
Chief Investment Strategist
After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto... -
Quarterly Outlook
FX Outlook: USD in limbo amid political and policy jitters
Charu Chanana
Chief Investment Strategist
As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ... -
Quarterly Outlook
Macro Outlook: The US rate cut cycle has begun
Peter Garnry
Chief Investment Strategist
The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c... -
Quarterly Outlook
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX: Risk-on currencies to surge against havens
Charu Chanana
Chief Investment Strategist
Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo... -
Quarterly Outlook
Equities: Are we blowing bubbles again
Peter Garnry
Chief Investment Strategist
Explore key trends and opportunities in European equities and electrification theme as market dynami... -
Quarterly Outlook
Macro: Sandcastle economics
Peter Garnry
Chief Investment Strategist
Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p... -
Quarterly Outlook
Bonds: What to do until inflation stabilises
Althea Spinozzi
Head of Fixed Income Strategy
Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ... -
Quarterly Outlook
Commodities: Energy and grains in focus as metals pause
Ole Hansen
Head of Commodity Strategy
Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)