Poor Chinese data sends Gold to 14-month high

Summary:

• Gold (+1%) breaks higher after Chinese data miss

• Industrial production falls to 17-year low

• Long-term inverse S-H-S coming into play?

After a strong run higher last week, this time out its been far more steady for equities, with most major stock markets trading not far from where they ended last Friday. Having said that, some news out this morning has threatened to cause some weakness into the weekend with a batch of data from the far east coming in worse than expected.

Chinese industrial production in particular was soft, with a year-on-year increase of 5% marking the lowest reading for this metric in 17 years and further supporting the notion of a slowing global economy. The release has caused European stock markets to fall lower while US futures also trade in the red in a small (so far) but broad risk-off move that has seen safe havens such as the Japanese Yen and Gold the biggest beneficiaries.

Gold is rallying higher and the market is now trading not far from last year's high around $1265/oz. Source: xStation 

Gold hits highest level since April 2018

The largest market reaction to the Chinese data can be seen in Gold with the market jumping over 1% in response. The price of bullion has moved up to its highest level since April 2018 and at $1355/oz the market is only just over 1% from the 2016 peak. If the market can get up to $1390/oz then you have to go back to 2013 to find a higher price. The Chinese national stats bureau have since attempted to play down the significance of the poor data, but it’s pretty obvious that their economy is slowing. Moreover, given the past lack of credibility associated with economic data from Beijing, the true figures could well actually be even worse.

Perfect storm brewing for Gold?

Perceived safe haven assets such as precious metals often thrive in periods of risk aversion and with US bond yields falling further it seems investors are becoming increasingly pessimistic about future growth prospects and at the same time expecting the US central bank to deliver a first rate cut in over a decade in the not too distant future.    

The current economic climate could be seen as highly conducive for Gold bugs with a slowing economic growth and rising expectations of Fed rate cuts potentially providing a perfect storm for the precious metal.   

Taking a long-term view an inverse head and shoulder could be forming in Gold with a potential neckline seen around $1390/oz. A break above their would target a large measured move higher somehwere in the region of $340! Source: xStation