Gold Declines Extend on Rampant USD, Crucial Support in Sight - US Market Open

2018-07-19 13:33:00

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MARKET DEVELOPMENTS – GOLD LOSSES EXTEND ON RAMPENT USD

US equity futures trading with modest losses (DJIA -0.4%, Nasdaq 100 -0.35%, S&P 500 -0.3%) following the declines seen across its European counterparts. The material names are among the worst performers given the fall in commodity prices with gold at the lowest since July 2017, while platinum has fallen to December 2008 lows.

Gold: The precious metal has thus far endured a torrid week and today has shown no signs of that letting up. This has by and large been due to the rampant USD gains, which have now posted a fresh YTD high. Alongside this, the sell-off in the Yuan has also dampened sentiment regarding China (largest consumer of gold), which in turn has exacerbated the declines in the precious metal. As such, gold prices are now eying crucial support in the form of the July 2017 low at $1204.

USD: 3rd time lucky for the USD index having broken above 95.50-55 to post fresh YTD highs. This had filtered through its major counterpart, while better than expected initial jobless claims data, in which the headline fell to a 48yr low provided an additional boost for the greenback. Subsequently, there are very little signs that the near 7% rise since April is stretched, however, the fact that speculators remain very long, suggests that gains will continue to be modest from these levels.

GBP: Another headache for BoE Governor Carney as soft UK data points have been rounded off by today’s weaker than expected retail sales report. Following the data, GBPUSD took out barriers at the 1.30 handle, hitting its lowest level in 10-months. However, the retail sales data had shown a marked improvement from the first quarter, which could provide the BoE with enough comfort to raise rates next month.

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IG Client Sentiment: Gold Price Chart of the Day

Spot Gold: Data shows 83.9% of traders are net-long with the ratio of traders long to short at 5.2 to 1. The number of traders net-long is 2.2% lower than yesterday and 14.6% lower from last week, while the number of traders net-short is 3.7% higher than yesterday and 35.0% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests Spot Gold prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current Spot Gold price trend may soon reverse higher despite the fact traders remain net-long.

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