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Fall-out from Jackson Hole - Video Update
30 Aug 2017
Investors shrug off North Korean missile launch - AM Briefing
30 Aug 2017
Gold breaks through $1,300 - PM Bulletin
29 Aug 2017
Equities slide after North Korean missile launch - AM Briefing
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 Tuesday 29 August 2017

Gold breaks through $1,300 - PM Bulletin

 

 

We’ve seen some big moves over the last few trading sessions in a number of major markets. European and US stock indices have fallen sharply along with the US dollar. Meanwhile, the EURUSD has broken above 1.2000 to hit its highest level since January 2015. Today’s sharp “risk-off” trade followed news that North Korea has fired off another ballistic missile. But upping the provocation levels, this time Pyongyang directed it over Japan and put it on course for the US territory of Guam in the Pacific.

Interestingly, President Trump was slow to respond - at least in terms of a public statement. Traders looking out for a torrent of angry tweets were left disappointed as Mr Trump kept his hands in his pockets for a number of hours after news of North Korea’s action broke. A few hours ago the president responded saying that “all options are on the table for North Korea.” But investors took this comment quite calmly and dialled back from the “risk-off” trade as US stock index futures recovered from their lowest levels. Investors also reduced their exposure to precious metals. Gold and silver pulled back from their best levels ahead of the US open although prices of both remain elevated.

But it’s worth noting that gold’s big move came yesterday afternoon, well before North Korea undertook its latest missile test. In fact, gold’s initial move was triggered by the sell-off in the US dollar (and rally in the euro) which followed Friday’s key speeches from Fed Chair Janet Yellen and ECB President Mario Draghi at the Jackson Hole Economic Symposium. It’s fair to say that few people expected either central bank head to say anything specific about monetary policy. However, there was a feeling that Mr Draghi would attempt to talk down the euro. The very fact that he didn’t led directly to a surge in the single currency and a sell-off in the dollar.

Yesterday gold broke above $1,300 and then flew higher as stops were triggered and fresh buyers poured into the market. Gold went on to close out at its highest level in eleven months, having traded at prices last seen in the volatile times directly following Donald Trump’s surprise election victory in November. Some traders believe this move could prove decisive in undoing the apparent stalemate that has existed between bulls and bears over the past few months. A look at the chart shows how gold repeatedly struggled to make a decisive break above $1,290 and appeared to be forming a bearish triple top just a fortnight ago. It’s looking a lot healthier now. But despite this it could be a bit rash to suggest that gold is now set for another big leg higher with last summer’s $1,375 high in prospect. It’s certainly a possibility, but it’s worth bearing in mind that a bounce-back in the dollar or any reduction in geopolitical tensions should lead to a sell-off in gold. Traders will want to see gold consolidate above $1,300 for the rest of this week and this could then provide a solid backdrop for buying the dips.

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Posted by David Morrison

Category: PM Bulletin


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