« A Disappointing Friday | Main | Bond Prices Becoming Overbought? »

Tension is Golden for Metal Traders

Thursday, April 13, 2017

Today's Spotlight Market

Geopolitical tension and outside market support have been a driving force behind Gold's recent rise. Last week's US air strikes on Syrian targets has created tension between the US and Russia. US Secretary of State Rex Tillerson was in Russia to try to smooth over relations between the two superpowers. Russian President Vladimir Putin, with no evidence, has claimed that the US is planning evidence implicating the Syrian government in using chemical weapons. The US has accused Russia in either being complicit with or oblivious to Syria's use of sarin gas on its people. This has triggered defensive buying of Gold.

Fundamentals

In addition to the tense relations between Russia and the US, North Korea has become increasingly belligerent of late, which likely has been a cause of concern for not only the US, but also neighboring China. The Trump administration has been attempting to leverage China with a better trade deal if they aid the US in reigning in North Korea. The US has participated in naval exercises with Japan near the Korean peninsula in a show of force, along with dispatching a strike group in the region.

Geopolitical risk is not the only driver of Gold. The global economy has shown increased signs of life, which has the potential to drive inflation. The weaker than expected March job numbers suggest that the Fed could push back rate hikes until later this year. Traders believe the central bank will raise rates another two times this year. The US Dollar Index has tumbled since last week. The greenback had been rebounding, but took a tumble after the weaker job numbers, further bolstering metal prices.

Technical Notes

Turning to the chart, we see the June Gold contract breaking through near-term resistance around the 1260 level and pushing toward the 1300 mark. Resistance at 1300 could be a major hurdle for the Gold market. Prices are trading above the 200-day moving average, which could be seen as bullish going forward. It is of interest to note that the momentum indicator is showing some bearish divergence from prices and the RSI.

Rob Kurzatkowski, Senior Commodity Analyst