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Gold Price Outlook Bearish on State of Union Address, ISM Data

Gold Price Outlook Bearish on State of Union Address, ISM Data

Dimitri Zabelin, Analyst
Gold 2-Hour Chart

GOLD PRICE OUTLOOK: BEARISH

  • Gold prices may suffer on President Donald Trump’s State of the Union Address
  • Hints at expansionary fiscal policies could alleviate demand for anti-fiat hedges
  • Key US ISM report and cross-continental PMIs may amplify losses in XAU/USD

GOLD PRICES MAY FALL ON STATE OF THE UNION ADDRESS

Gold prices may face selling pressure after US President Donald Trump’s State of the Union Address next week on Tuesday, February 4. During the speech, the Commander in Chief will likely cite progress on the US-China trade war, equity indices reaching record-breaking levels and praising the strength of the US economy following last week’s better-than-expected GDP figures.

Mr. Trump may also take the time to reveal more about a tax cut for the middle class he announced during the World Economic Forum in Davos, Switzerland earlier this month. He may also allude to future fiscal plans he intends on implementing in the new year which could boost risk appetite and pour cold water over Fed easing measures. Consequently, this may alleviate the demand for anti-fiat hedges and pressure XAU/USD.

XAU/USD MAY SUFFER ON KEY ISM DATA

Gold prices may also incur further losses if US non-manufacturing ISM data shows a better-than-expected print, reinforcing the notion of global stabilization in the world’s growth trajectory. Strong statistics of this kind would reinforce the Fed’s neutral position and dampen future rate cut expectations and sap upside pressure for gold.

COOLING CORONAVIRUS FEARS MAY EASE DEMAND FOR XAU/USD

Market-wide concern about the coronavirus has infected sentiment and punished global equity markets while providing a boost to anti-risk and anti-fiat assets like gold. While the Wuhan virus continues to spread and more cases are reported, the novelty of the risk is fading and so too may its potency in eliciting cross-asset volatility. Consequently, this may be a downside force for gold prices.

INTERNATIONAL TRADE CONFERENCE MAY ALSO PRESSURE GOLD

Following the outbreak of the US-China trade war, a contagion of trade-related tiffs infected global politics, disrupted supply chains and lowered economic growth projections. It also raised the overall risk premium across various assets because it gnawed at the pillars of certainty provided by dispute-settling mechanisms like the WTO. Since then, global policymakers have urged a return to a rules-based system.

Gold and negative-yielding debt

The uncertainty inflamed easing bets around the world and led to a surge in the market for negative-yielding debt to a record high of $17 trillion. Not entirely by surprise, gold prices rose in tandem. If the broad consensus is a return to multilateralism and away from unilateral protectionism, it could ease market angst and pressure gold prices. This decline may also be magnified if support for Mr. Trump cools ahead of the 2020 election.

CROSS-CONTINENTIAL PMI DATA MAY PUSH XAU/USD LOWER

A cascade of PMI data across the world – primarily in Asia – will also be published which may amplify losses in XAU/USD if it reduces the urgency for central banks to ease credit conditions. It would also help support the narrative of improving global growth in the absence of any immediate political risks – like the US-China trade war – that could derail the recovery and cause economic activity to fall below the projected baseline.

GOLD TRADING RESOURCES

--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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