Gold prices got a lift after the December Fed meeting, with Fed Chair Powell saying that interest rates are likely to remain on hold for quite some time.
An environment defined by an ardently neutral Federal Reserve leaves open the possibility for inflation to overshoot for a period of time, increasing one important aspect of gold’s appeal: precious metals tend to do well when real interest rates fall.
However, the good news for gold prices was short lived. Today, reports of progress on the US-China trade war front have sapped demand for safe haven assets, including gold prices. As a result, the downtrend in gold prices from the September and November highs remains intact.
GOLD VOLATILITY STAYS DEPRESSED
Precious metals like gold have a relationship with volatility unlike other asset classes. While other asset classes like bonds and stocks don’t like increased volatility – signaling greater uncertainty around cash flows, dividends, coupon payments, etc. – precious metals tend to benefit during periods of higher volatility.
Heightened uncertainty in financial markets due to increasing macroeconomic tensions (like US-China trade) increases the safe haven appeal of gold. On the other hand, decreased volatility tends to harm gold prices.
Gold: Retail trader data shows 71.71% of traders are net-long with the ratio of traders long to short at 2.53 to 1. The number of traders net-long is 7.96% lower than yesterday and 1.58% lower from last week, while the number of traders net-short is 15.53% higher than yesterday and 1.63% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Gold prices may continue to fall. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed Gold trading bias.
