Gold Tests 1,500 Amid Trade War, Recession, Rate Cuts Festival Fears

The ongoing trade war is dominating the headlines, and investors are really concerned about global stability and economic health. It is driving traders away from riskier assets and fueling traditional safe haven assets like gold.
Mauricio Carrillo
Gold Tests 1,500 Amid Trade War, Recession, Rate Cuts Festival Fears
Gold Tests 1,500 Amid Trade War, Recession, Rate Cuts Festival Fears

Gold and silver are posting gains on Wednesday as risk aversion has taken the market. The trade war is the catalyst, but concerns about global slowdown are underpinning even more metal gains.

Lower US 10-year Treasury yield, an aggressive rate cut in the New Zealand central bank, a rising yuan, and a not-that-good economic data this week are other significant catalysts.

The ongoing trade war is dominating the headlines, and investors are really concerned about global stability and economic health. It is driving traders away from riskier assets and fueling traditional safe haven assets like gold.

Yuan at highs again

USDCNY daily chart August 7

The Chinese yuan jumped earlier on the day to trade above the 7.050 level again on Wednesday after posting a decline to 7.010 on Tuesday.

However, after peaking at 7.052 earlier today, the USD/CNY reported losses in the last hour that quickly drove the pair back to the 7.020. Then, the cross performed with violence just in the American morning.

The unit is moving between 7.020 and 7.050. Who is buying and who is selling the pair? It’s the war!

Remember that a weak yuan, for instance, a strong USD/CNY will spark fears of further escalation in the trade war, then, more global concerns for an upcoming recession, then risk aversion and more purchases in safe havens such as gold.

New Zealand takes the lead

Boom! The Reserve Bank of New Zealand cut its interest rates by 50 basis points to 1.0% tonight, well above the 25 bps cut expected by market and fueling concerns that the aggressive rate cut will open the door to even more aggressive rate cuts by other major central banks.

The New Zealand central bank opted to take the lead and be more proactive following a slowing GDP and rising growth headwinds. The bank also hinted that more cuts are on the table.

“Global economic activity continues to weaken, easing demand for New Zealand’s goods and services. Heightened uncertainty and declining international trade have contributed to lower trading-partner growth,” the central bank said.

Investors are concerned about a possible acceleration on rate cuts by other central banks and an acceleration in the economic slowdown process. Investors now perceive a recession as an inevitable outcome after current political, trade, and economic factors.

Gold up for the third day

XAUUSD daily chart August 7

Gold is extending gains for the third day on Wednesday as investors are buying the metal amid global economic fears and risk aversion.

On Wednesday, XAU/USD jumped to test the 1,500 area for the first time since April 2013. Currently, gold is trading 1.50% positive at 1,496.

“Trade wars are the catalyst for the latest gains,” Ilya Spivak, senior currency strategist at DailyFx said in a recent note to clients. Increasingly fiery rhetoric out of Washington and Beijing is fuelling worries that the conflict will amount to a longer-term headwind for global growth.”

On the other hand, FX Empire analyst James Hyerczyk says that “the tone is bullish today and likely to remain so as long as global yields continue to tumble.”

Hyerczyk highlights yields as a critical catalyst for the metal, “gold traders are not reading the news. They are reacting to plunging yields. If ‘you’re trading gold then yields should be your number one indicator.”

Finally, Technical conditions are pretty bullish for gold in the short and middle term. Gold needs to close above the previous resistance at 1,492 to start thinking about a new leg. Then, 1,500, 1,515 and 1,540 will be the next resistances.

Silver jumps to 17.00

XAGUSD daily chart August 7

Silver accelerated on Wednesday, and after breaking the 16.60 level with violence, the unit jumped to trade as high as 17.00, its highest level in over a year.

Currently, XAG/USD is moving 3.20% positive on the day at 16.96, yet highs since June 15, 2018. Technical conditions are showing a robust uptrend on the cards with the 17.40 as the most natural destiny.

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