Gold Supported by Potential Global Slowdown
Tuesday, 29 January 2019
Gold has enjoyed a fairly stable start to 2019, with prices back to January 1 levels after sitting higher between January 10 and 18. Spot gold rose slightly on Friday to $1,282.10 on renewed concerns about the US Government shutdown, with global growth and US-China trade tensions still causing concern. In other precious metal news, palladium recorded its first weekly fall in over five weeks, and silver held steady at $15.375 after a slight drop mid-week.
Partial US Government shutdown
The ongoing US Government shutdown, now the longest in history, continues to dominate market news across the world. Two separate bills to end the partial shutdown failed to get support in the Senate during the week, with markets worried and gold prices supported as a result.
While global stock markets did experience a slight bounce during the week, this was only enough to keep gold steady rather than bring it down, which suggests stronger long-term support for gold prices. While gold’s attempts to cross resistance at $1,300 per ounce have repeatedly failed, prices also seem unwilling to fall.
US-China trade tensions
Despite repeated talk of the Government shutdown, the gold market continues to get major cues from the long-term trade war between the US and China. While the situation has been mostly muted over the holiday season, we're no closer to resolving the fundamental issues. Chinese Vice Premier Liu He will visit the US at the end of the month for renewed trade negotiations with Washington.
The only difference, and it could be an important one, is that China is now facing an increased risk of domestic economic downturn. If China experience reduced growth like many people are expecting, it could cause a synchronised global slowdown influenced by the existing trade war. While it's still early days, we may see a rise in gold prices as people look for a traditional safe-haven investment based on the principles of risk-aversion.
Brexit and Euro slowdown
Europe may already be experiencing the economic slowdown, with European Central Bank (ECB) President Mario Draghi recently blaming US-China trade tensions along with Brexit for what is likely to be weaker than expected growth in the Euro zone. While sterling hasn't fallen sharply like some people were expecting, the euro has been struggling near six-week lows since the ECB President's comments. With the dollar rising against the euro, gold will be more expensive for anyone who holds other currencies.