Gold is range bound as market players have turned cautious awaiting more clarity on major issues
Gold has been trading in a broad range near $1,500 per troy ounce in last few days as market players await more clarity on US-China trade conflict, Fed’s monetary policy and Brexit.
The immediate focus is on Brexit. Britain faces an October 31 deadline to leave the European Union (EU) -- a decision which will affect outlook for UK and European economies. After days of negotiations, UK and EU negotiators have finalized new terms of Brexit and EU member nations have also ratified the agreement.
The next hurdle is to get the deal approved in the UK Parliament. There are still concerns that the deal may not be approved as Prime Minister Boris Johnson’s political allies in Northern Ireland said they could not support the current framework for an agreement.
Uncertainty about Brexit is also evident from movement in British Pound. Pound surged to fresh five-month high post announcement of EU-UK deal but has given back some of the gains.
On trade front, US Treasury Secretary Steven Mnuchin said on Wednesday that US and Chinese trade negotiators are working on nailing down a Phase 1 trade deal text for their presidents to sign next month. Both US and China are under immense pressure to resolve the trade issue as it is hurting economic growth.
However, market confidence may remain shaky unless a concrete deal is reached. China has already indicated a need for additional talks and roll back of tariffs.
Tensions between US-China over Hong Kong issues may also hamper efforts to reach a deal. US policymakers are working on a bill that would subject Hong Kong’s special US trading status to annual reviews while China has threatened to retaliate if US enacts the bill.
On Fed front, the central bank has been hesitant on starting a monetary easing cycle however slowdown in the economy has kept market expectations high of another rate cut. As per Fed Beige book, the US economy expanded at a slight to modest pace since the prior report as business activity varied across the country.
US retail sales fell 0.3 percent in September, first decline in seven months. Fed’s next meeting is due on October 29-30 and based on Bloomberg estimates, market players are seeing an 84 percent chance of another 0.25 percent rate cut.
Gold is range bound as market players have turned cautious awaiting more clarity on major issues. However, it is highly unlikely that trade and geopolitical issues may be resolved soon while most central banks are likely to maintain accommodative stance.
This indicates that there is still a good chance that gold may resume its upward momentum however what is lacking is a fresh trigger which could revive investor interest.
(The author is Head – Commodity Research at Kotak Securities.)Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.