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Gold back above $1,500 as financial market looks fragile – Saxo Bank

Kitco News

(Kitco News) - The fragility of positive investment sentiment and financial market stability are on full display Wednesday as safe-haven demand is pushing gold prices back above $1,500 an ounce, according to one market analyst.

Ole Hansen, head of commodity strategy at Saxo Bank, reiterated his near-term call that the gold market is in a mild-correction within a strong uptrend. In a report Wednesday, he noted that the gold market has shown its hardiness after Monday’s 2% decline.

December gold futures last traded at $1,504.80 an ounce, up 1% on the day. Meanwhile, U.S. equity markets are down more than 1% on the day across the board.

“Instead of triggering a cascade of sell orders from speculators holding a record long in COMEX futures the price ‘only’ managed a move down to $1460/oz before finding support,” he said in the report. “As we highlighted in our latest Weekly Commodity Update the market was looking tired towards the end of last week and in need of a test lower to gauge its strength.”

Hansen added that it has only taken one bad U.S. economic report to prompt investors to flee equities and search for safe-haven asset like gold.

“A surprisingly weak U.S. September [Institute of Supply Management (ISM)] manufacturing survey that came in well south of 50 was all it took to remind the market why gold has rallied so far during the past few months and why it is likely to continue higher over the coming months,” he said.

Tuesday, the ISM said that sentiment in the U.S. manufacturing sector sled deeper into contraction territory last month, significantly falling short of economist expectations.

Hansen added that the latest economic report, in conjunction with data from around the world, is renewing investor focus on a potential synchronized global slowdown.

“Adding to this slowdown is a worry that the resumption of trade talks between the U.S. and China later this month will fail to yield a breakthrough,” he said.

Hansen added that he will be paying close attention to the ISM’s service sector report, which will be released Thursday. He explained that this report will have the biggest impact on third quarter growth estimates.

Looking at gold prices, he said that the support level investors need to watch is $1,485 an ounce.

“While the first key level of support at $1450/oz was not challenged a quick return above $1485/oz could now attract additional buying from those who had been waiting for a bigger correction,” he said.

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