Five things to look for in 2019 for Gold Traders
What a year it has been so far for Gold.
The yellow metal extended gains to an eight-month high as fallout from geopolitical turmoil including US-China trade tensions, a WW3-inducing Venezuelan ‘coup’, and Brexit uncertainty has spurred demand for the safe-haven metal. Spot Gold is now at its highest since May 2018 against the US Dollar.
Here are five things to look out for this year:
- It’s pretty late in the credit cycle and we can see that government deficits are set to increase. This is an interesting phenomenon in the developed world as an increase of monetary inflation, coupled with lower tax receipts and risks of a slowing global economy – could well see the “hedge” trade in place – whereby funds are placed into Gold.
- China’s reducing demand and slowing international trade is seen as one of the largest concerns among investors, and as such the precious metal again could well be sought as a further safe-haven.
- De-dollarization – is a big theme of late with big players in Asia turning their backs on US dollar settlement trading. This, in turn, has a profound impact on central bank reserves, not just in Asia, but other trading counterparts.
- Central European nations have been accumulating Gold reserves at record rates, clearly catching wind of the Asian trends.
- Gold is becoming massively under-owned in the West, notably with Gordon Brown selling half of the UK’s Gold reserves for less than $1k an ounce (ouch!)
The US Dollar index weakens for the 7th straight day as investors’ appetite for risk increases. The AUD/USD has broken the 0.69 mark, with the USD weaker against its G10 currencies, with global indices rising on forward optimism on a quicker recovery from the effects of the Coronavirus. US Indices have seemed to quickly discount the effects of the protests as they continue for the 8th straight day.
A couple of weeks ago, I wrote an article about the decorrelation between Wall Street and Main street. Back then, this was related to the Coronavirus’s impact on everyone in the light of Wall Street’s impressive rally. While Main street is still reeling from the devastation the Coronavirus has brought, current protests due to another incident involving a white policeman killing a black man have sparked outrage all over the country.
Will Hong Kong abandon the peg against the USD? The financial hub of Asia, which connects the East to the West has been in the middle of pissing contest between the United States and China, not to mention their domestic struggle between them and China. If protests for autonomy in Hong Kong continue, and President Trump implements drastic foreign policy measures against Hong Kong, extreme capital outflows may ensue, forcing the Hong Kong Monetary Authority to abandon its peg on the U.S. dollar.
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