Gold has repeatedly failed to live up to its title as a safe-haven asset for investors despite ongoing global trade tensions and chaos across emerging markets weakening risk sentiment.
The rising interest rate environment, robust U.S. economic growth and bullish equity markets in the United States are just a handful of many themes that have offered nothing but pain to Gold. With the high opportunity cost of holding the zero-yielding metal a leading factor behind weak appetite, prices tumbled roughly 4.9% during the third trading quarter. However, the major culprit behind Gold’s painful downfall remains a broadly stronger Dollar and this continues to be reflected in price action.
As we head into the final quarter of 2018, investors may continue shunning Gold in favour of the Dollar, which has become the go-to-currency in times of global trade uncertainty. The Greenback has already stolen a fair chunk of Gold’s safe-haven allure this year amid the bullish sentiment towards the U.S. economy. It seems investors remain with the belief that robust economic growth could shield the United States from negative impacts of global trade risks, supporting the Dollar into a destination of safety for investors.
Ongoing developments across emerging markets will play an important role in where the precious metal concludes this year. Emerging markets are the biggest consumers of physical Gold and with their currencies hammered in recent months by an appreciating Dollar, this could weaken purchasing power. A drop in purchasing power is very bad news for Gold and is likely to compound the metal’s pain. Investors will also keep a close eye on the looming mid-term elections in November for any potential shifts in trade policy rhetoric which could impact Dollar sentiment.
Gold’s short- to medium-term outlook will remain heavily influenced by the Dollar’s performance, rate hike speculation and emerging market developments. The longer-term view will depend on how intense global trade tensions become. If trade disputes reach a dangerous tipping point and transform into a full-blown tit-for-tat trade war, Gold could find itself back in fashion.
Focusing purely on the technical outlook, Gold remains depressed and unloved on the monthly timeframe with prices trading within a bearish channel. There have been consistently lower lows and lower highs created since prices tumbled below the $1,300 psychological level back in May 2018. With the metal poised to conclude the third trading quarter of 2018 under the $1,200 psychological level, bears remain in firm control. Previous monthly support is likely to transform into a dynamic resistance that encourages a decline towards $1,160 and $1,150, respectively.
The weekly charts illustrate a similar bearish picture with $1,213 proving very stubborn resistance. Sustained weakness below the $1,200 psychological level could inspire bears to challenge $1,173 and $1,160. Daily traders may interpret the breakdown below $1,190 support as a signal for further downside with $1,170 acting as a magnetic point. For bulls to jump back into the game prices need to break back above $1,190 and $1,213.