Gold technically bearish as long as risk appetite remains positive

May 17, 2019

London (May 17)  It’s been a bizarre week in the markets, one that looks set to end on a negative note in a potential sign that investors are not particularly comfortable despite a three day winning streak.

The week got off to a woeful start after China announced counter-tariffs against the US as trade talks broke down. Markets had been surprisingly resilient at the end of last week when the US announced its tariff increase on $200 billion worth of goods but once China followed, all hope quickly disappeared as investors prepared for more friction and further tariffs.

Trump then succeeded in calming investor fears, claiming the fallout was just a mere “little squabble” between the world’s two largest economies before then offering further hope to investors as reports claimed auto-tariffs may be delayed by six months. Clearly the prospect of fighting a trade war on multiple fronts isn’t too desirable, particularly heading into an election year.

That proved enough to settle investors and markets have recovered since Monday but I wonder whether futures trading in the red heading into the weekend is a sign they’re not entirely convinced. A lot can happen while the markets are closed and we clearly live in uncertain and uneasy times. If this is to last, we’ll need to see more evidence that the situation can lead to a positive conclusion but for now, talking a good game looks to be doing the job.

Sterling on the decline again as hard Brexit fears rise

The pound is on the decline again as reports continue to suggest that Brexit talks between the Conservatives and Labour are about to reach an unsuccessful conclusion. Once again precious weeks have been lost and it appears we’re no closer to agreeing on the country’s exit from the European Union. This uncertainty combined with the prospect of a more hardline Brexiteer – one of which has already thrown his hat into the ring – is unsettling sterling traders.

We’ve gone from a situation in which a deal late in the day looked likely to one in which all options, up to and including no deal, may be back on the table. That doesn’t bode well for the economic prospects and the currency may continue to suffer as these options become more plausible. The break below 1.28 against the dollar is a clear sign of the unease being felt, with 1.27 now being the key level below.

Gold technically bearish as long as risk appetite remains positive

The rebound in equity markets has taken the shine off gold which had been benefiting from its role as a traditional safe haven. Gold ran into resistance around $1,300 earlier in the week and has since fallen back below $1,290 where it had previously struggled to push above. Ultimately, it seems that the direction of travel is highly dependent on whether risk appetite holds up.

The trend over the last few months has been bearish and that hasn’t changed during the recent spike. In fact, we’ve just rotated off a lower high, the peak of which was around 50% of the move from this year’s high to low. From a technical perspective, this is a perfect bearish signal but unfortunately, I don’t yet have the confidence in the markets not to become risk averse again which would be supportive for the yellow metal. The next week could be very interesting.


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