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Gold prices suffer headwinds as global risk sentiment strengthens

A weekly market summary for gold, Apr 1-5 Gold Report

AN UPTURN in global manufacturing PMIs (on March 19) along with signs of progress in Sino-US trade talks have bolstered risk appetite as Q2 2019 kicks off with a positive note. A sharp rebound in Chinese factory activities propped Asian stocks close to a eight-month high as investors moved in heavily towards interest-bearing assets. Dovish economic policies from global central banks have laid negative pressure on bullion appeal as market sentiments improve on a potential economic turnaround.

We opine however that it remains too early to assess a rapid shift in global growth prospects for 2019. Eurozone data continues to illustrate for persistent economic weakness whilst US economic conditions look poised to weaken further from previously-held hawkish monetary policy. Gold prices, though hinting for a potential pullback, will remain robust amidst flagging global growth prospects in the longer term.

What should investors look out for in the coming term?

Though gold prices have appreciated significantly from Q3 2018, a positive consensus in global equities along with a resilient US dollar have capped bullish gains in Q1 2019. Risk-on sentiments from a pick-up in global economic data along with signs of progress in US-China trade negotiations have imposed downward pressures on the non-interest bearing asset. Though we note looming bear signals pervading chart patterns in Q2, we opine that downside potential for gold will remain fairly limited and short-lived. Persistent economic weakness in Q1 2019, will weigh invariably on corporate earnings and risk-on sentiments for the coming term. Safe haven flows will remain vigorous as investors deliberate softer global growth prospects in 2019.

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Technical Analysis for Spot Gold (XAUUSD)

Gold prices have traded broadly between the US$1,276.00 and US$1,325.00 mark after an extended bull run in Q4 2018. The precious metal has since struggled to hold bullish gains amidst severe headwinds at key resistance levels. Price action continues to suggest persistent bearish influences though strong support has been sighted at key support level of US$1,280.00. Technical overview as seen from the monthly chart has illustrated growing signals of a bearish correction in Q2 2019. Should market bulls fail to hold above the US$1,276.00 mark, robust negative pressures will take gold prices to US$1,265.00 and US$1,240.00 in the short term. Gold prices must hold above the US$1,302.00 mark for a continuation in the positive trend scenario for the coming term.

Weekly Market Assessment: Mildly Bearish
Key Resistance Level (1): 1,298.00
Key Resistance Level (2): 1,310.00
Key Support Level (1): 1,276.00
Key Support Level (2): 1,265.00

  • The writer is an investment analyst at Phillip Futures