Gold sets yet another record high, China stimulus talk disappoints

Gold continued its record-breaking run this week, setting another all-time high today above 2,687 USD. Bulls are looking to the 2,700 level.

Demand for the precious metal is seasonally high due to retail buyers in India preparing for the Dhanteras and Diwali festivals. In addition, poor manufacturing data out of the US has boosted gold prices as traders and investors increased their expectations for further rate cuts by the Federal Reserve. A weaker USD is generally seen as bullish for gold prices.

However, the latest bull run may be limited as the chances of further deep rate cuts by the Federal Reserve fade. A 25bps cut in the interest rate by the Federal Reserve on November 7 is almost set in stone, and the chances of a further 25bps cut in the December meeting are above 80%. With the election cycle reaching its zenith, the USD is also supported by poll data showing a resurgence in Trump’s bid for the White House. Trump’s stated economic policies are considered inflationary and bullish for the dollar.

In the meantime, the details on China’s much-discussed stimulus package continue to underwhelm, potentially adding another block to further bullish moves in the gold price.

Earlier today, the Chinese housing minister, Ni Hong announced plans to double credit support for a selected group of housing projects as part of efforts to reinvigorate the troubled property sector.

The so-called whitelist was introduced in January and includes projects and developers eligible to receive further financing from local and state-owned banks to help them complete unfinished projects.

Equity markets hoping for more from the government were unimpressed with the newly announced measures, with the Hang Seng Mainland Properties index dropping 6.7%. Zerlina Zeng, head of Asia credit strategy at CreditSights, said banks “might be reluctant to extend additional funding to incomplete home projects as they still need to bear the credit risk”. She added that a large amount of the money lent up to August through the whitelist programme was for refinancing existing debt.

Recent data shows that Chinese economic growth remains lacklustre, with both exports and imports falling well below expectations in September. As the largest purchaser of gold in the world, any uncertainty about the extent of the Chinese government’s stimulus package—or concerns over the leadership’s resolve in combatting economic weakness—will weigh on gold prices.

Overall, while it is hard to bet against gold’s extraordinary run continuing, the fundamentals show that a pullback from the recent highs could well occur over the short term.

But with speculation at a fever pitch, further rises are not impossible. Of course, the question then becomes whether we are entering bubble territory, and if so, traders should be very careful indeed.

Technical Analysis

Having surpassed its previous all-time high of 2,685.48 (26th September) early in today’s  US trading session, the gold price looks set to continue its upward trajectory towards the 2,700 USD mark.

This bullish bias is further reinforced by the fact that the price continues high above all moving averages (20, 100, and the 200-EMAs) and that the RSI is in positive territory at 66.69 but still has a way to go before becoming overbought.

Should the USD strengthen, the 2,660 psychological handle acts as immediate support, and below that, the 2,648 level, and after that, the 2,630 level.