Gold MYR 362.69 / g
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Gold rallies as central banks prepare to cut, geopolitical risk rises, Chinese trade rebounds
MAY 10, 2024

Credit: Kitco

Monfort noted that spot gold was trading higher on Thursday “after several major central banks either decided to cut interest rates or signalled a greater willingness to cut them in the future.” Lower interest rates reduce the "opportunity cost" of holding Gold which is a non-interest-yielding asset, making it more attractive as an investment.

The precious metal is also seeing a renewed safe haven bid from the “stalemate in ceasefire talks between Israel and Hamas after Israel’s continued incursions into Rafah, and reports of a worsening situation on the frontline for Ukraine add further upside pressure from geopolitical risk,” he wrote.

But rate paths have returned to the fore as multiple central banks are gearing up to cut interest rates following years of monetary tightening.

“In Sweden the Riksbank made the move to cut interest rates by 0.25% to 3.75% for the first time since 2016 and in the UK, the Bank of England (BoE) voted by a narrower 7-2 margin to keep rates unchanged instead of cutting them,” Monfort said. “This was one vote more than the 8-1 of the previous meeting, showing an increased willingness on the part of policymakers to entertain rate cuts.”

“Furthermore, The Swiss National Bank (SNB) was the first major central bank to cut its interest rates at its March meeting, and the Reserve Bank of Australia (RBA) made a dovish hold which surprised markets at its last policy meeting,” he said, adding that the European Central Bank (ECB) has “all but guaranteed it will go ahead with an interest-rate cut in June.”

The U.S. Federal Reserve is now the major exception, Monfort noted, as they continue to signal their intention to keep rates high for the foreseeable future. “The divergent stance of the Fed compared to other central banks is also strengthening the US Dollar (USD) creating another headwind for the USD-denominated Gold price,” he said.

A larger-than-expected rise in Chinese exports is also supporting the yellow metal. Exports rose 1.5% in April after posting a 7.5% drop in March.

“China is a key player in the global market for Gold so strong economic data from the country impacts its valuation,” he said.

Turning to the technical picture, Monfort said the price action was still showing mild downside risk. “It is currently finding support from both the 200 and 50 Simple Moving Average (SMA) on the 4-hour chart, in the $2,310s,” he said.

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“The Moving Average Convergence Divergence (MACD) indicator is mildly negative, painting red bars on the histogram,” he noted. “Further, the MACD line has crossed below the signal line, giving a sell signal. Price could potentially fall back down to the base of the range at around $2,280.”

However, Manfort pointed out that longer timeframes look positive. “The bullish gold price trend on both the medium and long-term charts (daily and weekly), overall add a supportive backdrop,” he said. “As such, a decisive break out of the top of the range would signal a likely move up to a conservative target at $2,353 – the top of wave B and the 0.681 Fibonacci extension of the height of the range extrapolated higher. In a bullish case, it could even possibly hit $2,370.”

Gold prices have continued to trend higher in Thursday trading, with spot gold now less than $10 from Monfort’s initial target, last trading at $2,344.79 per ounce for a gain of 1.56% on the session.

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