Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
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Weak U.S. data a reminder why gold remains in demand
Ole Hansen
Head of Commodity Strategy
Summary: Gold has been challenged this week following the break below $1485/oz. Weak economic data has however reminded the market why gold has been and most likely will continue to be one of the best performing markets in 2019 and beyond.
Gold has so far responded very well to the challenge it faced on Monday when the price broke below support at $1485/oz. Instead of triggering a cascade of sell orders from speculators holding a record long in COMEX futures the price ‘only’ managed a move down to $1460/oz before finding support. As we highlighted in our latest Weekly Commodity Update the market was looking tired towards the end of last week and in need of a test lower to gauge its strength.
Silver led the way with the sell-off not running out of steam before it reached $17/oz, a 50% retracement of its June go early September rally.
A surprisingly weak U.S. September ISM manufacturing survey that came in well south of 50 was all it took to remind the market why gold has rallied so far during the past few months and why it is likely to continue higher over the coming months.
The PMI survey release of 47.8 vs. 50.0 expected, the lowest since the last recession ten years ago, triggered a run on fresh USD longs while the S&P 500 and bond yields both dropped. Growth dependent commodities such as copper and oil traded lower while gold and to a lesser extent silver – given its industrial metals link – moved higher.
Several weak economic data points from around the world has returned the focus to the ongoing synchronized global slowdown. Adding to this slowdown is a worry that the resumption of trade talks between the U.S. and China later this month will fail to yield a breakthrough.
With economic data in focus the attention now turns to Thursday's U.S. non-manufacturing ISM, the only data that really matters for Q3 GDP as household consumption represents about 70% of the US economy. Therefore clearly a much better gauge to assess the real state of economic activity. The week concludes with the monthly U.S. job report and following these two key data points a weekly close above or below $1485/oz will give a very good idea about where the yellow metal goes next.
What we have witnessed so far this week, from a technical perspective, has been a weak correction within a strong uptrend. While the first key level of support at $1450/oz was not challenged a quick return above $1485/oz could now attract additional buying from those who had been holding out for a bigger correction.
More on gold, silver and platinum in our Q4 Outlook which can be found on www.analysis.saxo from tomorrow.
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