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Merkel scrambles to form coalition - AM Briefing
25 Sep 2017
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22 Sep 2017
Fed Meeting Post-Mortem - Video Update
21 Sep 2017
Fed signals another rate hike - AM Briefing
21 Sep 2017
Trading subdued ahead of Fed meeting - Video Update
20 Sep 2017
Fed expected to reduce balance sheet - AM Briefing
20 Sep 2017
FOMC and balance sheet reduction - PM Bulletin
19 Sep 2017
Dow hits fresh record high - AM Briefing
19 Sep 2017
EURUSD continues to trend higher - PM Bulletin
18 Sep 2017
Global indices storm higher - AM Briefing
18 Sep 2017
Investors shrug off NK missile test - AM Briefing
15 Sep 2017
Sterling soars after BoE meeting - Video Update
14 Sep 2017
Bank of England meeting in focus - AM Briefing
14 Sep 2017
Look-ahead to the BoE monetary policy meeting - Video Update
13 Sep 2017
Sterling bounces as inflation picks up - PM Bulletin
12 Sep 2017
Wall Street rally lifts sentiment - AM Briefing
12 Sep 2017
Euro storms higher - AM Briefing
08 Sep 2017
ECB meeting in focus - AM Briefing
07 Sep 2017
EURUSD soars during Draghi’s press conference - Video Update
07 Sep 2017
ECB meeting, a look-ahead to Thursday - Video Update
06 Sep 2017
Wall Street wobbles, but closes off lows - AM Briefing
06 Sep 2017
WTI recovering as clean-up continues - PM bulletin
05 Sep 2017
Investors shrug off North Korean threat - AM Briefing
05 Sep 2017
North Korean nuclear test boosts gold - PM Bulletin
04 Sep 2017
North Korea rattles markets - AM Briefing
04 Sep 2017
High hopes for the latest US jobs release - AM Briefing
01 Sep 2017
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President Trump branded the test “hostile and dangerous” and said that it opened up the possibility of a military response.

We last looked at the gold chart in some detail three weeks ago. Back then the question was whether the precious metal was heading for an upside breakout or in the process of forming a triple top which meant a sharp sell-off was likely. The recent price action has confirmed the former with the decisive move through $1,300 coming exactly a week ago. The break came as investors responded to news that North Korea had shot a missile over the northern Japanese island of Hokkaido. Residents awoke to the sound of sirens and were warned to evacuate and find solid shelter. Investors also rushed for cover which led to sharp gains precious metals, the Swiss franc and Japanese yen.

This morning saw similar moves in safe havens after North Korea undertook another nuclear test over the weekend. This was seen as yet another provocation, made worse as it appears the regime just exploded a hydrogen bomb, many orders of magnitude larger than anything tested previously by them.

North Korea’s latest move may be seen as a step too far. President Trump branded the test “hostile and dangerous” and said that it opened up the possibility of a military response. The presidents of China and Russia were united in their condemnation of the latest move from Pyongyang. Xi Jinping and Vladimir Putin agreed to “appropriately deal with” the latest nuclear test. But as yet there has been no coordinated agreement as to how to respond to this latest act of aggression. This could well be because the options are severely limited. As President Trump’s key advisor, Steve Bannon said before he was booted out of the White House: “Until somebody solves the part of the equation that shows me that ten million people in Seoul don’t die in the first 30 minutes from conventional weapons, I don’t know what you’re talking about, there’s no military solution here, they got us.”

That’s not to say that there aren’t voices close to the president who would agree. However, it does seem that sanctions are more likely. Trump’s latest thoughts on the subject came yesterday when he tweeted: “The United States is considering, in addition to other options, stopping all trade with any country doing business with North Korea”. That would include China of course, and the ramifications of US sanctions against China don’t really bear thinking about. In fact, if the market really thought there was any danger of such a move, the S&P would probably be a good 10% lower by now.

So where next for gold? Well much depends on if there’s any further escalation in geopolitical tensions, and that does seem likely as things stand. And against this background we had a poor set of employment numbers on Friday. Wage growth was particularly tepid confirming that workers have yet to feel the effects of an improving unemployment situation with the headline number sitting near 16-year lows. Earlier last week core PCE (the Fed’s preferred inflation measure) slipped again, confirming a downtrend that’s been in place since early this year. But this lack of inflation can help gold just as long as investors remain convinced that the Fed will hold back from hiking rates further in the near-term. Currently, the market doesn’t expect the Fed to hike again until mid-way through next year. But there’s still an expectation that the US central bank is getting ready to start reducing its $4.5 trillion balance sheet. This could help to lift the dollar and send gold lower.

Yet while there’s so much uncertainty over how the issues affecting North Korea and her neighbours unwind, gold should find support. But that’s not to say we won’t see a near-term pull-back on profit-taking. Chart-wise the next upside target is $1,375 - the multi-year high hit last summer. Hopefully $1,300 should offer support. However there’s always a danger of a larger pull-back should the dollar suddenly reverse direction and rally. But it’s worth noting that the downside trend that has been in place since the third quarter of 2011 appears to be over (see second chart). Only a pull-back below that line would invalidate the break-out. 

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Posted by David Morrison

Tagged: Bulletin PM

Category: PM Bulletin


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