Gold prices were knocked from more than two-month highs on Tuesday, as risk appetite returned to the financial markets.
Gold Rally Fails to Eclipse $1,300
A familiar narrative has befallen gold this week, as the metal appears poised to complete a triple-top formation extending all the way back to April. After gaining roughly 5% over the past month, prices failed to overtake the all-important $1,300.00 level. Bullion declined 0.3% on Monday and is down another 0.7% during Tuesday’s Asian session.
December gold, the most actively traded futures contract, traded in the low $1,280.00 range overnight. The technical picture remains largely positive, although the fundamental outlook could undermine bullion’s resilience.
If the current narrative plays out like it has done multiple times this year, the yellow metal is likely heading lower over the short term. The extent of the downfall will depend on several factors, including the health of the U.S. dollar and performance of several key economic indicators.
The U.S. dollar index (DXY) has stabilized recently, but continues to trade near 15-month lows. The DXY basket is down 8.5% year-to-date.
Risk Appetite Returns as North Korea Fears Blow Over
Global equity markets surged on Monday after senior White House officials quelled fears of imminent war with North Korea.
On Wall Street, the S&P 500 Index climbed 1% to close at 2,465.84. Ten of 11 sectors contributed to the rally, with financials and technology shares leading the way. The Dow Jones Industrial Average rose 0.6% to 21,993.71. The tech-laden Nasdaq Composite Index spiked 1.3% to 6,340.23.
A measure of implied volatility known as the CBOE VIX plunged more than 20%, partially offsetting last week’s massive jump. The so-called “fear index” tracks inversely with the S&P 500 Index at least three-quarters of the time.
European stocks also rose sharply, rebounding from five-month lows. The Stoxx Europe 600 Index rallied 1.1% after registering a 2.7% loss last week. National bourses were also higher, with Germany’s DAX and France’s CAC 40 adding 1.3% and 1.2%, respectively.
Data Deluge, Monetary Policy In Focus
The economic calendar heats up on Tuesday and for the remainder of the week with headline data and policy releases. Retail sales and industrial production will headline the U.S. calendar on Tuesday and Thursday, respectively. The Federal Open Market Committee (FOMC) meeting minutes will also provide food for thought on Wednesday.
The Fed is keeping interest rates steady for the short term as policymakers devise a strategy for winding down their $4.5 trillion balance sheet. The FOMC minutes may provide clues about the pace and timing of those efforts.