Duncan Donald

Fri, Aug 14

Gold corrects lower before steadying with US bond yields on the rise

As always, the summer markets can be tricky, with the US markets showing the lowest level of volume (measure of daily transactions) since late February.  This low volume can lead to periods of inactivity, which we have seen for large parts of this week, or heightened volatility which was ultimately highlighted by the big move in Commodities this week.


Having seen Gold and Silver particularly bid over the last month, due to both a lower US Dollar and the horizon of low interest rates in the global economy, the prices of precious metals had surged, with Gold up from $1450 per oz, the year’s low topping out at $2074. Whilst it's always expected that we see slight correction after such appreciation, the magnitude and speed of the move lower took many by surprise as with US bond yields swinging higher, it crashed to $1,865 before steadying, clearing out even the most conservative of stop loss levels as it dropped. The close and open over this weekend will give us a big indication to the next direction, should we sustain above the $1,935 level expectation will be for a push back towards the year’s highs.


In the Stock markets we have seen them start to weigh heavily in the latter part of the week, having again surged in the main throughout the week, with tech stocks making a comeback late on, leading the Nasdaq as the strongest performer. Continued Covid-19 concerns, the political impasse on agreeing the aid and care bill in the US, have the markets expectant of further stimulus from the Federal Reserve when they return from summer recess in September, even despite improving weekly unemployment data seen on Thursday.


This weekend brings a scheduled discussion between officials of the US and China, a year on after the trade deal was struck. Whilst the scheduled agreements have not been met, it’s been far from an ordinary year, and as such concession should be expected. But, under the Trump administration and with his continued political posturing, traditional thought and balance cannot be guaranteed. From a market perspective the biggest shock would be a harmonious, balanced, and fair resolution to the talks.


In the UK, the week again brought ups and downs, with GDP figures showing the UK is firmly in a heavy recession, granted that was not a shock to any, but comments from Chancellor Rishi Sunak regarding increased joblessness as the furlough scheme draws close to ending left many concerned. On the flipside, there were some more positive comments on Brexit, with UK negotiator Frost claiming that a trade deal can be made with the EU in September, with the Irish PM reiterating that the desire is there from UK Prime Minister’s team to get a deal, despite recent comments from the EU claiming the UK were not inclined to negotiate.


The UK on Thursday increased the number of countries on the official quarantine list, as Covid-19 cases in France and the Netherlands increased, weighing on European stocks into the weekend. Having been the poster child for action and suppression of the virus, New Zealand also saw a return of the virus in Auckland, bringing an immediate lockdown on the city pushing the New Zealand Dollar lower on the week making it one of the worst weekly performers.


The Week Ahead:


Monday:  A quiet day with Housing data from the UK out early ahead of Japanese GDP. In the US session we get Mortgage delinquency data and Empire State Manufacturing. 


Tuesday: First up is the minutes from the Reserve Bank of Australia's interest rate setting meeting. 


Wednesday: OPEC meetings will dominate the day. In Asia Japanese Trade Balance and Core machinery orders. From the UK we get RPI, PPI and CPI inflation data ahead of European Final and Core CPI and Current Account data. In the US session we get Canadian CPI and in the evening The meeting minutes from the last Federal Reserve Meeting. 


Thursday: Australian Employment and Unemployment is first up before Chinese CPI and PPI inflation data. From the UK we get a Bank of England Credit Conditions Survey. In the US session its Philly Fed and Weekly Jobless. It's also notable there will be a G20 meeting in the afternoon.


Friday: Japanese Industrial Production is the first data of the day before UK Retail Sales. We then get Eurozone CPI and Trade Balance. US and Canadian Retail sales come in the US session as well as University of Michigan Consumer Sentiment.