Video

John J Hardy
Saxo Bank’s head of FX strategy John Hardy takes a closer look at trends and moves in today’s forex charts, including EURUSD, USDJPY, AUDUSD, and EURSEK.
Article / 03 October 2017 at 14:33 GMT

Yields, USD in focus as gold hits next area of support — #SaxoStrats

Head of Commodity Strategy / Saxo Bank
Denmark
  • Data, rate hike forecasts, tax reform seen reducing focus on geo-risks
  • 'Dollar and yields will determine where support is established'
  • Gold on the defensive but no signs of accelerated selling seen so far
Catalonia
The referendum and constitutional crisis in Catalonia can now be added to the list of ambient geo-risks, but traders are not seeking safe-havens just yet. Photo: Shutterstock

By Ole Hansen

Gold has fallen to a six-week low in response to rising US yields and a stronger dollar. The anticipation of a December rate hike, US tax reform plans, together with data showing US manufacturing expanding at the fastest pace in 13 years have further helped reduce the focus on geopolitical risks. 

With stocks at a record high, the VIX at a record low, and geo-risks at least temporarily fading, demand for diversification and tail-end risk protection have faded during the past couple of weeks. 

Rising US real-yields and a weaker Japanese yen have both been non-supportive for gold since the early September peak. Last week's tax reform announcement by President Trump further added to the unease among funds who had been strong and continued buyers of gold during a nine-week period up until September 12. 

The need to reduce bullish bets currently sets the tone but overall the direction of the dollar and yields will determine where support is eventually established. 

Gold drivers
 
Trump's rating recovered following last month's deal on the debt ceiling and the Harvey/Irma response. However the late Puerto Rico response, accusations of tax reform tailored to the rich, and now the potential of a new gun control debate have seen the administration's ratings slide once again. With that comes the risk of irrational behavior and ill-considered remarks – factors that have proved supportive in the past. 

Adding to the list of geopolitical hot spots (apart from North Korea) we now have European political uncertainty following the Catalan referendum and Middle East concerns following the Kurdish vote for independence in Northern Iraq. 

Gold remains on the defensive but so far there has been no signs of accelerated selling despite seeing it breach key technical levels. Today's weakness was arrested at $1,268/oz, the 38.2% retracement of the 2016-to-2017 rally. Further (down) trendline support and the 50% level will provide an additional layer of reinforcement. 

Spot gold:
Spot gold with retracement levels
 

Create your own charts with SaxoTraderGO click here to learn more

Source: Saxo Bank 

— Edited by Michael McKenna

Ole Hansen is head of commodity strategy at Saxo Bank

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Tradingfloor.com permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Tradingfloor.com and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Tradingfloor.com is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Tradingfloor.com or as a result of the use of the Tradingfloor.com. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through Tradingfloor.com your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. Tradingfloor.com does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail