Multiple Factors Shape a More Bullish Market Sentiment for Gold

April 9, 2019 - 6:05pm

 by Gary Wagner

There is solid support for gold as multiple factors shape market sentiment resulting in a much more bullish undertone. For the second day in a row gold is trading moderately higher, gaining over six dollars today matching its gains yesterday. This is following last week’s tepid action resulting in a defined and narrow trading range which technically speaking, formed a base and level of support just below $1300 per ounce.

Yesterday’s move and close above the key psychological support level of $1300 is significant, and today’s continuation indicates not only solid support but a revitalized bullish market sentiment.

This renewed vigor is the result of multiple factors. First there is the 180-degree pivot by the Federal Reserve which began in January of this year. The January FOMC statement was void of their “dot plot.” This was the first real sign that the Fed was about to substantially change their monetary policy. This was confirmed in last month’s FOMC statement that stated that the Fed will leave interest rates at their current level throughout 2019, with one interest rate hike in 2020.

Secondly, concern that the current trade dispute between the United States and China has had the net effect of slowing down the global economy. This was confirmed today when the IMF cut the 2019 global growth outlook. This report suggested that all major economies as well as most big emerging market economies are deteriorating.

As reported in the Wall Street Journal today, “Global economic growth in 2019 is off to a worse start than was apparent earlier in the year, with nearly the entire world economy stumbling, according to new forecasts from the International Monetary Fund.

The IMF’s latest economic forecasts cut the outlook for growth in 2019 to 3.3% from estimates of 3.5% in January and 3.7% in October. The decline has been broadly felt, with all major advanced economies, including the U.S., and most major emerging-market economies seeing deterioration in their outlook.”

This global slowdown could certainly be exacerbated with the announcement by Donald Trump that he would impose new tariffs on European goods in response to approximately $11 billion worth of subsidies provided to Airbus.

As reported in MarketWatch, “The office of the U.S. Trade Representative threatened to levy tariffs on many European goods Monday afternoon as retaliation against European companies' subsidies for aircraft manufacturer Airbus, The U.S. and EU have been battling about subsidies for more than a decade, with the U.S. saying that European subsidies are unfair to U.S. manufacturer Boeing Co.”

Lastly, the action of central banks worldwide have been accumulating bullion and increasing their gold reserves. According to Kitco News, “Analysts have noted that central-bank gold demand has provided an important support for the yellow metal as it continues to facing growing competition from rising equity markets and resilient strength in the U.S. dollar. Some analysts have also said that they don’t expect central banks to stop buying gold anytime soon as countries reduce their dependence on the U.S. dollar.”

It is the combination of these three factors that have reignited bullish sentiment for gold. These factors could continue to move gold pricing higher on a long-term basis and result in substantially higher gold prices in the coming year.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer