Price of Gold Fundamental Daily Forecast – Traders Watching for Yield Inversion to Signal RecessionWe expect gold to continue to be underpinned by the near inversion in the 2 and 10-year Treasurys, and to possibly accelerate to the upside when they actually do invert. Military action by China in Hong Kong should also send prices higher as well as a further plunge in the Argentine Peso.
Gold futures spiked to a multi-year high on Tuesday, boosted by a number of events including unrest in Hong Kong, a plunge in the Argentine Peso, weaker demand for risky assets and a drop in Treasury yields that could be signaling a recession. The focus for gold traders should be on the long-term because these events are not likely to change over the near-term.
At 12:30 GMT, December Comex gold is trading at $1534.20, up $17.00 or +1.13%.
Hong Kong Unrest
In Hong Kong, pro-democracy protestors took to the streets for an 11th straight day after shutting down the airport on Monday. Conditions could escalate now that China has entered the picture.
According to CNBC, “Chinese propaganda outlets warned on Tuesday that protesters in Hong Kong are ‘asking for self-destruction,’ as they released a video showing military vehicles amassing near the border of the city.”
Hong Kong’s leader, Carrie Lam, said that “lawbreaking activities in the name of freedom” were damaging the rule of law and that the Asian financial hub’s recovery from anti-government protests could take a long time.
Beijing responded to the widespread anti-government protests by calling them “sprouts of terrorism” and saying such violence must be severely punished, “without leniency, without mercy.”
In a Tuesday social media post from the Global Times’ Chinese edition, the outlet said “if Hong Kong rioters cannot read the signal of having armed police gathering in Shenzhen, then they are asking for self-destruction,” according to a CNBC translation.
Argentine Peso Crashes
In Argentina, the peso collapsed on Monday, dropping about 15% of its value against the dollar, while hitting an all-time low. The currency is being pressured by fears of a possible return to interventionist policies of the previous government after market-friendly President Mauricio Macri was soundly defeated in a recent primary election
Falling Bond Yields Close to Signaling Recession
Gold traders are watching the 2-year to 10-year yield spread as it narrowed to less than 4 basis points on Tuesday, with the curve at its flattest level since 2007. A yield-curve inversion has been a reliable recession indicator watched by the Federal Reserve as well as many market experts. Data show a recession comes in about 22 months on average after the curve inverts.
Stock Market Investors Seeking Shelter
Falling yields and recession signals are encouraging investors to book profits and shift money into safe haven investments like gold and the Japanese Yen.
We expect gold to continue to be underpinned by the near inversion in the 2 and 10-year Treasurys, and to possibly accelerate to the upside when they actually do invert. Military action by China in Hong Kong should also send prices higher as well as a further plunge in the Argentine Peso.