Geopolitical risks have sparked renewed demand for safe-havens, but the rally in Gold prices is now largely underpinned by the weakness in USD, TDS commodity strategist Daniel Ghali notes.
“Geopolitical risks have sparked renewed demand for safe-havens, but barring further escalations, the rally in Gold prices is now largely underpinned by the weakness in USD, associated with the strength in Asian currencies, and the strong bid in bond markets, rather than by demand for Gold itself. Under the hood, this actually points to a less favorable backdrop for Gold flows.”
“Any sign of geopolitical de-escalation in the Middle East risks inflicting significant damage to Gold bulls, with a reversal in safe-haven flows potentially forcing discretionary money managers to liquidate their bloated positions, which could in turn catalyze subsequent selling activity at a large-scale from CTA trend followers should prices revisit the $2400/oz mark in active futures.”
“Strength in Asian currencies is actually destroying demand for precious metals as a currency depreciation hedge in the region, which has been a key driving force of the latest run to new all-time-highs. Asia remains on a buyer's strike, with no sign of a resurgence in the macro drivers that had sparked their seemingly insatiable appetite for the yellow metal in the first place.”
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