Gold Spiking Midweek

Gold prices are catching a firm bid on Tuesday with the futures market up almost 3% through early European trading on renewed safe-haven demand. The yellow metal had been lower over Monday and Tuesday as risk sentiment looked to be rebounding on growing optimism that Trump would enter into negotiations over the trade tariffs announced last week. However, with Trump pushing ahead with additional tariffs on China, and threatening more action to come if China doesn’t back down, the mood has turned sour again fuelling a return to safety as investors fear a fresh market rout.

Inflation on Watch

Looking ahead this week, alongside incoming trade headlines, gold traders will be watching tomorrow’s US inflation reading. With US economic prospects deteriorating in the wake of the trade war, Fed easing expectations have risen sharply with the market now pricing in just under 1% worth of cuts this year, down from around .5% prior to the tariff announcement last week. If CPI is seen cooling further tomorrow, as expected, this should cement near-term easing expectations, putting pressure on USD while creating further support for gold prices.

Medium Term View

Medium term, the inflation picture is likely to become more complicated. Many economists have cited upside inflationary risks from the trade war which won’t hit the market immediately but in the coming months. Weakening economic activity alongside rising inflation will make the Fed’s job very difficult but should ultimately feed into continued support for gold as a safe-haven.

Technical Views

Gold

The correction lower in gold has stalled for now into a retest of the bull channel lows and the 2,949.88 support level with price now attempting to bounce back above the 3,039.97 level. Back above here, focus will return to the YTD highs and a continuation higher. Below 2,949.88 the next support to note is the 2,859.15 level.  In the Signal Centre today, we have a buy limit at 2995 suggesting a preference to buy into any dips from current levels.