Geopolitical tensions send Gold to 6-year high

Summary:

• Gold moves above $1400/oz on US-Iranian tension

• USD the biggest faller in major FX this week

• Are stocks upside about to be capped by Trump?

Reports overnight that Trump was ready to issue a retaliatory strike on Iran after an unmanned US drone was shot down caused Gold prices to surge, with the precious metal moving above the $1400/oz handle to trade at levels not seen since August 2013. It’s been a big week of gains for bullion, with the clear dovish shift from the Fed sending both US bond yields and the buck lower and contributing to the 4% rise seen in the price of Gold since Monday. A slowing global economy, imminent US rate cuts and rising geopolitical tensions provide a near perfect storm for Gold bugs and while this trio of factors remain in place the rally seen in recent weeks will remain well supported.

Gold prices have rallied by as much as 4% this week, with the market trading up to levels not seen since August 2013. A longer term inverse head and shoulders setup may be forming. Source: xStation

G20 meeting in focus

It’s been a busy week on the economic calendar with major central banks seemingly attempting to outdo each other in delivering a more dovish message with the ECB, Fed and BoE all hinting at more accommodative policies going forward. Looking across the FX space the US dollar is the weakest major currency on the week with the latest update from the US central bank causing the largest market reaction - this was as much due to the Fed having a greater ability to ease policy compared to its European peers, as it was down to the strength of the communication itself. Looking ahead there’s not too much by the way of scheduled events next week from an economic perspective, with the main themes likely to be the ongoing escalation in Middle Eastern tensions and the G20 summit in Osaka, Japan.

The US dollar is trading lower against all its peers on the week after the Fed. The largest gains seen in EM currencies with both the South African Rand and Chilean Peso appreciating more than 2% against the buck. Source: xStation   

Trump collar to dictate China stance?

Donald Trump has been especially active on social media this week, with the US president tweeting regularly on Iran, the Fed and the US stock market, and these posts have caused immediate reactions in the markets. A hint on Tuesday of a thawing in the frosty trade relationship with China sparked a move higher in stocks, but the chances of a tangible breakthrough next week still seem fairly remote and it would not come as much of a surprise if Trump, feeling emboldened by the dovish shift in the Fed and all-time highs in US stocks, chooses to continue to take a hardline in US-Sino relations.

There’s been a feeling for sometime now amongst traders that Trump uses the markets as a guide for his policy decisions with a so-called put clearly seen in stocks, which causes a softer approach to negotiations when equities are under pressure. To extend the options strategy, on the other side of the equation there’s a possible short-call above the market whereby Trump will see the recent strength on Wall Street as an opportunity to enforce a less market friendly approach on China and in doing so provide a ceiling that would cap a breakaway rally in equities.

The S&P500 has rallied to a new all-time high this week with the market receiving a boost from the Fed. The region around 2950-2980 could be seen as key longer term resistance and traders will be watching US-China developments closely in the next week or so to see whether that world’s 2 largest economies can reach a compromise on trade. Source: xStation