The sudden volatility in Asian financial markets sent gold sharply higher in the short term to near $1,568 an ounce, while the dollar fell below the 110 marks against the yen. Analysts said that while there was no obvious risk trigger in the short term, markets were in a risk-off mood as early rocket fire continued to worry the Middle East and the IMF cut its global growth forecast overnight, with safe-haven assets such as gold and the yen reacting as stocks came under pressure. Gold is expected to rise further if US President Donald trump’s speech on trade, which investors will focus on today, reiglows trade tensions.
Flavio Tosti, an analyst at FXStreet, wrote that gold was in an upward trend on the daily chart, above the main simple moving average (SMA). After failing to defend the $1,600 per ounce barrier earlier this month, gold is regaining momentum.
After breaking through $1,563 / oz resistance, gold could move further toward $1,570 / oz and $1,580 / oz resistance levels, Tosti said.
The yen, another safe-haven asset, also rose sharply. Dollar/yen losses accelerated in the short term, losing the 110 level to a low of 109.93.
On the news, at about 010 local times on January 21, the Iraqi capital Baghdad green zone was hit by three rockets, located near the U.S. embassy zone and international coalition camps, air defense sirens sounded.
The move comes after geopolitical concerns over a weekend missile attack in Yemen boosted gold’s safe-haven appeal, while pre-spring festival buying also provided support.
Houthis, allied with Iran, attacked a military training camp in the Yemeni city of malibu on Saturday, killing dozens of people.
Commerzbank analyst Eugen Weinberg said investors were heading for gold, mainly because of long-term uncertainty such as political turmoil, potential stock market volatility, weak earnings expectations, and an ultra-low interest rate environment.
Investors still need to keep a close eye on developments in the Middle East, where any unexpected news could reignite wild market volatility.
The international monetary fund on Monday cut its forecast for global growth in 2019, 2020 and 2021, warning that the outlook for the global economy remained weak with no clear sign of a turning point.
In its latest world economic outlook, the IMF cut its forecast for global growth in 2020 to 3.3 percent from 3.4 percent in October. It cut its estimate for global economic growth in 2019 to 2.9 percent from a previous estimate of 3 percent.
Focus on trump speech
The world economic forum 2020 annual meeting and Davos forum will be held from January 21 to 24 with the theme of “building global strength for sustainable development”.
US President Donald Trump will deliver a speech at the world economic forum annual meeting 2020 at 18:30 Beijing time on Tuesday. Mr. Trump is expected to address the prospects for the US domestic economy and trade disputes with the European Union.
Mr. Trump is back in the spotlight after missing Davos last year because of the government shutdown. In 2018, Mr. Trump used the Davos speech to signal his aggressiveness on trade, an early sign of global trade tensions.
After the US signed a first-phase trade deal with China last week, analysts say Mr. Trump’s next target will be the EU. The move means the trade dispute is heating up, giving trump’s speech extra prominence.
While signing the first phase of the economic and trade deal with China, Mr. Trump kept his eye on the ground by sharply criticizing negative interest rates in the eurozone and telling it to “pay us”. Mr. Trump also blamed the large us current account deficit on the “excessive” value of the dollar.
Trade disputes between the US and Europe have been on display since 2017. The US imposed tariffs on steel, aluminum and steel products from the EU in 2018. The EU responded by imposing tariffs on US motorcycles and agricultural products.
The US has also threatened more trade sanctions on “national security” grounds. Although the deadline has passed and the Trump administration has yet to act, he could change his mind at any moment.
Analysts said that if Mr. Trump reignited the us-European trade dispute in his latest speech, it would exacerbate risk aversion in the market and thus spur further gains in gold prices.
In addition to the us-EU trade dispute, Iranian foreign minister Mohammad Javad Zarif said on Monday he would not attend the forum, disappointing hopes for a us-Iran meeting in neutral Switzerland to ease tensions in the Middle East.