Gold rose to a two week high and was higher in most currencies today after Washington’s threat of tariffs on Mexico exacerbated fears of a global trade war and recession, which saw a ‘flight to quality’ and gains for safe haven gold.
Spot gold jumped 0.9% to $1,298.80 an ounce this morning, its highest since May 15. Gold bullion has risen over 1.2% this month and appears headed for its first monthly gain in four months. This is important from a technical perspective and the fundamentals of growing risk aversion and robust demand should lead to further gains in June.
European trading has seen a clear flight to quality after President Trump unexpectedly politicised tariffs by slapping 5% on all goods coming from Mexico.
The increasingly hopeless case of a U.S. and China trade deal looked even further away after China drew up an “Unreliable entities” list of foreign parties (presumably mostly U.S.) that harm Chinese firms.
Stocks are red across the board globally with the S&P 500 breaking down sharply below its 200 day moving average (DMA). 2776 is a key level and Wall Street and Wasshington will not want a close below this level. Market intervention is quite possible, if not likely.
A weekly close below the 200 day moving average (DMA) could lead to follow through selling on Monday which could get ugly given the economic backdrop.
Financial stocks are particularly under pressure including UBS and embattled Deutsche Bank with the latter posting new “all time” lows of around €6. A whiff of contagion is in the air.
US and German bond yields hitting recent lows indicate the Fed might be backed into a rate cut sooner than they have been guiding with an inverting yield curve being a good barometer of trouble ahead
The greenback has also benefited somewhat from the risk off trade, in the face of this, silver and particularly gold are holding up well despite the recent sell off.
$1,300/oz and $14.60/oz are the respective hurdles approaching for both. Weekly closes over these levels should see follow though buying and further gains.
How far down we go, nobody knows, but it makes sense to stay cautious and prepared.
Fasten your seat belts it could be a lively Friday afternoon and weekend…