Gold 1 OZ (XAU=X) Central Banks Still Reluctant to Call for Rate Cuts

Gold 1 OZ (XAU=X) Central Banks Still Reluctant to Call for Rate Cuts

Gold 1 OZ (XAU=X) Central Banks Still Reluctant to Call for Rate Cuts

Gold prices are trading higher on Thursday after a late pick-up in demand the previous session following the test of a one-week low. After a surge to its highest level in seven years on Monday, prices have drifted mostly sideways to lower. The move isn’t reflecting a change in the bullish fundamentals, but rather the thought that prices are relatively too expensive.

There is no doubt that gold has been a tricky market to analyze and trade this week because it only makes sense that prices should be moving sharply higher in response to a steep plunge in U.S. equity markets and a drop in 10-year U.S. Treasury yields to a record low on Thursday. The price action suggests that gold buyers may have been well ahead of the rest of the markets when it made its recent surge while U.S. stocks were hitting record highs.

Lower Interest Rates Reduce Opportunity Cost of Holding Non-Yielding Gold

Growing expectations that central banks will certainly need to take action if coronavirus continues to spread, particularly outside China, is helping to prop up prices.

Investors have increased bets for a rate cut by the U.S. Federal Reserve to ease the impact on the economy, according to an analysis of Fed funds futures compiled by the CME Group. Money markets have also priced in cuts by the European Central Bank and Bank of England.

“Markets are already pricing in some decent cuts to rates across the globe so that’s the clear driver of (gold) prices and demand,” ANZ’s Hynes said.

Money markets are now fully pricing in one 25 basis point cut in the Fed’s rate by April and three by March 2021. Expectations for a European Central Bank (ECB) rate cut have also risen; money markets now price in more than 80% chance of a 10 basis point rate cut in July.

Central Banks Still Reluctant to Call for Rate Cuts

Not all central banks are in a hurry to cut rates, however, with U.S. officials saying it’s too early to consider a rate cut, and policymakers in Australia and New Zealand feeling a rate cut from current levels may not have the same impact on the economy as a rate cut from higher levels.

Furthermore, in a surprise move, the Bank of Korea kept its benchmark policy rate unchanged. Central bank policymakers surprised the financial markets by holding its benchmark interest rate at 1.25% when analysts polled by Reuters were expecting a rate cut. That was despite a recent spike in the number of coronavirus cases in the country threatening its economy.

Aberdeen Standard Investments’ Leong Lin Jing described the Bank of Korea’s interest rate decision as “a little bit curious.”

“Bank of Korea has had a habit of being a little bit behind the curve … when acknowledging that growth is slowing down,” Leong said.

Technical Indicators

Overall, the bias in prices is: Upwards.

Note: this chart shows extraordinary price action to the upside.

By the way, prices are vulnerable to a correction towards 1,567.07.

The projected upper bound is: 1,674.73.

The projected lower bound is: 1,610.71.

The projected closing price is: 1,642.72.

Candlesticks

A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 7 white candles and 3 black candles for a net of 4 white candles. During the past 50 bars, there have been 32 white candles and 17 black candles for a net of 15 white candles.

A long upper shadow occurred. This is typically a bearish signal (particularly when it occurs near a high price level, at resistance level, or when the security is overbought).

A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 37.9278. This is not an overbought or oversold reading. The last signal was a sell 2 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 67.56. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 2 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 86. This is not a topping or bottoming area. The last signal was a sell 1 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 7 period(s) ago.

Rex Takasugi – TD Profile

PREC.M.XAU= closed down -0.065 at 1,639.510. Volume was 8,900% above average (trending) and Bollinger Bands were 109% wider than normal.

Open     High      Low     Close     Volume___
1,640.1601,660.0411,635.2601,639.510 74,776
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period     50-period     200-period
Close: 1,621.54 1,563.93 1,481.40
Volatility: 16 13 15
Volume: 7,478 1,496 374

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

PREC.M.XAU= is currently 10.7% above its 200-period moving average and is in an upward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect very strong flows of volume into XAU= (bullish). Our trend forecasting oscillators are currently bullish on XAU= and have had this outlook for the last 6 periods.

The following two tabs change content below.
HEFFX has become one of Asia’s leading financial services companies with interests in Publishing, Private Equity, Capital Markets, Mining, Retail, Transport and Agriculture that span every continent of the world. Our clearing partners have unprecedented experience in Equities, Options, Forex and Commodities brokering, banking, physical metals dealing, floor brokering and trading.

Latest posts by HEFFX Australia (see all)