Gold glimmers as uncertainty mounts

February 24, 2017 10:43 AM

The heightened political risks in the U.S. and Europe have revived an appetite for safe-haven assets with gold becoming an investor’s popular choice. This metal remains firmly tilted to the upside on the daily charts and the rapidly fading expectations of a U.S. interest rate increase in March has inspired bullish investors to propel prices higher. With prices already charging to a fresh three-month high above $1,255, further Dollar weakness could fuel the upside momentum that sends the metal towards $1,260. Although the prospects of higher U.S. rates in 2017 may cap gains on gold in the longer term, bulls remain in control in the short term with the current trajectory pointing to further upside. From a technical standpoint, previous resistance around $1,250 could transform into a dynamic support that encourages a further incline higher towards $1,260.

Stock markets gripped by unease
Global stocks were exposed to downside shocks on Friday as the growing concerns over U.S. trade policies impacting regional economies sparked waves of risk aversion. Asian shares were heavily depressed during early trading on Friday with the bearish contagion infecting European markets. The visible jitters created from the events in Europe and growing unease over the Trump developments could place Wall Street under renewed selling pressures moving forward. Although global stocks have repeatedly hit record highs, there remains some skepticism over the sustainability of the rally with a selloff on the table if Trump fails to deliver his market shaking tax cuts and fiscal policies.

Dollar under renewed pressure
The Greenback lost its attitude this week after the Fed minutes failed to convince participants that U.S. rates would be increased in March. Uncertainty originating from the Trump developments has fuelled the Greenback selloff with the Dollar Index currently trading around 100.80 as of writing. Although it is visibly clear that economic data and overall sentiment towards the U.S. remains bullish, the uncertainty and politics continue to cap Dollar gains. The downside momentum on the Dollar Index could drag prices lower towards 100.50. A technical breakdown below 100.50 may open a path to the next relevant support at 100.00.

Commodity spotlight – WTI Oil
Oil price volatility remains a dominant theme this quarter as participants re-evaluate the supply and demand dynamics that has driven the global oil markets. Although the rising optimism over OPEC members’ cutting oil production has attributed to WTI’s impressive appreciation this quarter, the fears of U.S shale obstructing OPEC’s effort to cutting supply could limit gains on oil. Much attention will be directed towards the ongoing OPEC and U.S shale developments in the coming weeks with any signs of the oversupply woes resurfacing exposing WTI to steep losses. WTI remains pressured below $55 with weakness potentially encouraging a selloff lower towards $52.

About the Author

Lukman Otunuga is an FXTM research analyst