Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Global Head of Trader Strategy
Access all our platforms from a single account.
Gold looks to the UK and Italy for support
Ole Hansen
Head of Commodity Strategy
Summary: Gold took a beating last week at the hands of US rate hike expectations and unexpectedly strong data. Now, renewed dollar strength against EUR and GBP is keeping the pressure up on the yellow metal.
Gold has dropped to its lowest in a month (-0.3%) and is now looking for support this Monday after breaking below $1,211/oz on Friday. Last week it was the stronger-than-expected US PPI coming just after the Federal Open Market Committee confirmed that further gradual rate hikes are coming that helped send the yellow metal lower. The weakness this morning has been driven by continued dollar strength, especially against the euro (+0.8%) as the European Commission is ready to escalate its budget battle with Italy. The dollar has also gained versus sterling (+1%) as pressure built on the British Prime Minister to ditch her Brexit plan or face defeat in Parliament.
Following on from last Friday’s PPI, the market will be looking ahead to the release of October US CPI on Wednesday. The headline figure is expected to show a year-on-year rise of 2.5%, up from 2.2% in September. The US bond market has not yet bought into a rising inflation outlook with the 10-year breakeven yield having stayed close to 2.1% all year. As a result of this the equivalent 10-year real yield, currently at 1.13% and up from 0.4% at the beginning of the year, has been rising almost in line with the rise in nominal yield. Rising real yields pose a challenge to gold given the opportunity cost of holding an asset that does not pay a coupon or a dividend.
Following on from last Friday’s PPI, the market will be looking ahead to the release of October US CPI on Wednesday. The headline figure is expected to show a year-on-year rise of 2.5%, up from 2.2% in September. The US bond market has not yet bought into a rising inflation outlook with the 10-year breakeven yield having stayed close to 2.1% all year. As a result of this the equivalent 10-year real yield, currently at 1.13% and up from 0.4% at the beginning of the year, has been rising almost in line with the rise in nominal yield. Rising real yields pose a challenge to gold given the opportunity cost of holding an asset that does not pay a coupon or a dividend.
Hedge funds reduced bearish gold bets by 18% during the week to November 6 before the mentioned price weakness ahead of the weekend. ETF investors meanwhile increased total holdings again, albeit at a much reduced rate compared with the previous four weeks.
The political uncertainty, which is the key driver behind today’s dollar strength – note it is trading unchanged against the Japanese yen – has helped cushion gold’s drop with focus now being the area of support between $1,202/oz (50% Fibo) and $1,198/oz (trendline from the August low).
However, keep an eye on silver which after testing resistance last week once again collapsed. It is currently challenging support at $14/oz, and with silver already trading historically cheaply relative to gold, a break below is likely to be felt in gold as well.
Latest Market Insights
Quarterly Outlook
-
-
Quarterly Outlook
Equity Outlook: The ride just got rougher
Charu Chanana
Chief Investment Strategist
-
Quarterly Outlook
China Outlook: The choice between retaliation or de-escalation
Charu Chanana
Chief Investment Strategist
-
Quarterly Outlook
Commodity Outlook: A bumpy road ahead calls for diversification
Ole Hansen
Head of Commodity Strategy
-
Quarterly Outlook
FX outlook: Tariffs drive USD strength, until...?
John J. Hardy
Global Head of Trader Strategy
-
Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
-
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
Commodity Outlook: Gold and silver continue to shine bright
Ole Hansen
Head of Commodity Strategy
-
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
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 ...