Gold Prices Remain Supported by Strong Fundamentals

30 Jul 2024

By Priyanka Sachdeva, Senior Market Analyst for Phillip Nova

 

Gold experienced a significant surge last week, spurred by a notable decline in the US Dollar. This upswing in 2024 highlights Gold’s appeal as a safe-haven asset following substantial acquisitions by global Central Banks despite a backdrop of persistent inflation. Despite the higher interest rate environment, Gold has attracted considerable investment interest. However, after peaking at $2488.40 per ounce on 17 July 2024, the price quickly corrected as momentum indicators signalled an overextended rally.

 

Market speculation is rife regarding a possible dovish shift to the Federal Reserve’s position, the speculation is further exacerbated by the ongoing decrease in US inflation. This has led to hopes that the Fed might start reducing terminal rates in September, thus potentially making Gold more attractive. Additionally, New York Fed President Bill Dudley has suggested that the Fed could cut rates as early as next week due to recession concerns, noting that the Fed’s efforts to cool the economy are showing progress. This sentiment aligns with recent remarks by Fed Chair Jerome Powell, who emphasised that “elevated inflation is not the only risk we face.”

 

Whether or not the Fed will surprise the market with a rate cut, economic concerns are escalating as prolonged “monetary tightening” could quickly lead to a recession. So far, Fed officials have skilfully managed to keep a balanced approach.

 

From a technical standpoint, Gold’s trend remains positive, marked by higher highs and higher lows within an upward channel. As long as no new lower lows are established, the trend is likely to continue upward. If Gold bulls push prices higher, the metal might revisit its May high of $2450, which poses an immediate resistance level before potentially reaching $2500. On the downside, Gold has support at the 50-Day Simple Moving Average of $2372 per ounce (S1) and the 100-Day Simple Moving Average of $2333 per ounce (S2). For the bullish trend to persist, one of these support levels must hold.

 

Although the market is adjusting to the recent decline and consolidation around $2400 per ounce, investors are looking for confirmation that the bullish trend will resume at current levels. Despite short-term fluctuations, the long-term outlook for Gold remains positive, supported by factors such as Central Bank purchases, potential Fed rate cuts, and ongoing geopolitical tensions in the Middle East. Investment sentiment in Gold is strong due to increased momentum.

 

In the latest Union Budget, India has reduced its import tax on Gold, perfectly timed for the festive season, which is expected to boost consumer demand. Gold is highly valued in India not only for industrial and investment purposes but also for its cultural significance. As a major global gold buyer, India’s reduction of the import duty to 6% is likely to drive strong global demand for bullion.

 

Gold’s enduring appeal as a safe-haven asset has consistently driven up its prices amid geopolitical uncertainties. However, for Gold to sustain its upward trajectory, a significant catalyst is needed. Actions by the Fed could play a crucial role in this regard. Gold’s investment appeal often shines brightest when Treasury yields decline, reducing the opportunity cost of holding the metal.

 

In summary, the fundamentals support a bullish outlook, but overlooking economic data could be risky. The second half of 2024 is anticipated to be volatile, with the US election in the final quarter adding to the uncertainty. Political instability in the US, a potential ceasefire in Gaza, and a slow recovery in mainland China all have the potential to affect financial markets. Additionally, the strength of the US Dollar against a basket of currencies could pose risks to Gold.

 

Trade COMEX Gold Futures & Options with Phillip Nova

In our Flash Deal promotion for the month of August, you can capture opportunities in COMEX Gold Futures and Options at only 50 cents*. Learn more about this exciting promotion here.

Trade Stocks, ETFs, Forex & Futures on Phillip Nova

Features of trading on Phillip Nova

  • Gain Access to Over 20 Global Exchanges
    Capture opportunities from over 200 global futures from over 20 global exchanges
  • Trade Opportunities in Global Stocks
    Over 11,000 Stocks and ETFs across Singapore, China, Hong Kong, Malaysia and US markets.
  • Over 90 Technical Indicators
    View live charts and trade with ease with over 90 technical indicators available in the Phillip Nova platform
  • Trade Multiple Assets on Phillip Nova
    You can trade Stocks, ETFs, Forex and Futures on a single ledger with Phillip Nova
An Exchange Traded Fund (ETF) is a marketable security that is formed to track nearly anything, ranging from a specific index, sector, commodity, or increasingly, theme. They are most commonly used to track a basket of stocks, and can typically be accessed through the same channels as regular stocks. ETFs are typically separated into passively-managed ETFs that simply mirror the security they are tracking (e.g. the STI), and actively managed ones that attempt to deliver higher returns or specific investment objectives, often with a pre-specified theme in mind (e.g. ARK Invest’s Innovation ETF).

Why should I trade in ETF CFDs?

  • ETFs have been growing in popularity over the years. 2020 was the best year for ETFs yet, with global equity ETFs seeing more than $1T in inflows within a 12-month period. Using CFDs to gain exposure to ETFs allows for greater capital efficiency because only a portion of the contract value is required as margin to establish a position.
  • ETFs are particularly popular with investors seeking a relatively hassle-free investing experience, while desiring exposure to a range of specific and relatively understandable securities. Trading ETF CFDs brings greater convenience by eliminating the need for traders to hold multiple currencies in order to access global ETFs.
  • An investor wanting exposure to the post-pandemic economic recovery could open a position in the well-known SPDR S&P 500 ETF (SPY), which tracks the performance of the S&P 500. Another investor that may be convinced of the future importance of Environmental, Social and Governance concerns (ESG) may find the increasing selection of ESG-themed ETFs that track a basket of high ESG-rating companies to be a good investment, rather than cherry-picking individual equities by hand. ETF CFDs can act as a powerful tool for traders can profit from both directions of the market by taking on long or short positions.

A look at two ETF CFDs we offer:

1) Has the ARKK been sunk?

ARK Innovation ETF (ARKK) ARKK is an actively managed ETF by ARK Invest that invests in a range of companies based on their innovative and industry-disrupting potential. ARKK’s largest holdings are in companies such as Tesla, Square, and Zoom. ARKK is down around -33% from peaking on 12th Feb and is currently in the red for the year to date as the market experiences a risk-off outflow of funds. Superstar fund manager Cathie Wood has however been consistently doubling down on her bets, buying even more shares in growth stocks that are going through their own tumultuous periods such as DraftKings, Peloton, Teladoc, and Tesla. In her view, ARKK is playing the long game, and remains steadfastly convinced in the long-term prospects of these growth stocks beyond this current bout of volatility. Similarly on outflows, investors are still betting big on ARKK as ARK Invest has only lost about $1.2B in assets this year across all its six funds, compared to seeing an inflow of $15.1B during the same period. Recently, investors have been nervously eyeing ARKK’s basket of tech stocks as their future earnings potential remain vulnerable to erosion through high inflation – the dominant concern of the market in recent weeks. As commodities – the major contributor to the recent heightened inflation fears – drops sharply from record highs, are investor concerns over hyperinflation overblown?

2) Searching for exposure to Asian equities?

iShares MSCI Asia ex Japan ETF (AAXJ) The AAXJ is currently trading -10.6% adrift of all-time highs seen in February, giving up gains in tandem with an Asia-wide equity sell-off at the time. Given that slightly over 40% of the ETF’s holdings are based in China, the ongoing tumult seen in Chinese equities currently have carried over nearly perfectly in the AAXJ, as Chinese investors take a breather after the stellar gains made over the past year. Looking ahead, Asia – and particularly China, is steaming ahead with its economic recovery. China is widely expected to be one of the best-performing major economies this year, providing a major boost to the outlook for corporate earnings. As the rest of Asia and the world gradually opens up their own economies, AAXJ is likely to again benefit from strong Asian outperformance amidst a strengthening trade outlook.

CFD is available for trading on Phillip MetaTrader 5 (MT5).

Features of trading CFD:

  • Trade in both the bull and the bear markets
    The ability to enter a long and/or short position allow traders to take advantage of both rising and falling markets.
  • Smaller barrier to entry
    Flexible and smaller contract sizes. This means that traders will be able to enter into a contract with a modest amount of capital.
  • No expiration date or risk of delivery
    Unlike futures which commonly have a fixed expiration date, CFD allows traders to perpetually hold the position(s). CFD is cash settled, no need to worry about the delivery of the underlying asset.

 

Benefits of using Phillip MT5:

Trade at zero commission on a dynamic platform that offers low spreads. Integrated with Autochartist and Trading Central Indicators, and available on mobile, web and desktop app, you will never miss a trading opportunity with Phillip MT5.

Register for a FREE 30-day Phillip MetaTrader 5 Demo Account

More Market Trends

Strategic Futures Trading During US Election Week

Read More >

Stock Market Trends and Election Outcomes: Getting Prepared for the 2024 US Elections with the Phillip Nova 2.0!

Read More >