The golden way for having a safe haven
The gold is still holding yesterday gains following the Chinese credit rating agency Dagong Global’s choice to meet the temporary US political solution by downgrading the US governmental debt to A- from A maintaining a negative outlook of it.
The markets received this downgrading as sign of increasing the probabilities of having Chinese diversification out of the US treasuries while it’s currently the biggest treasuries foreign holder with what worth $1.28b and this allocation can lead other countries to do the same hurting the USD and its backed securities in favor of other currencies and also gold which is looking better with low interest rate levels in several emerging countries facing high commodities and energy prices for having also better financial positions and in the same time hedge against inflation.
The Gold could jump 45$ following this downgrading came after putting the US credit rating on negative watch by Fitch and after S&P had lowered its economic forecast of US GDP growth of this year to 2% from 3% it has expected earlier evaluating the loss of the US economy during the governmental shutdown by about $24b.
While no one can know exactly how much the US economy has lost by losing confidence in its creditability by this strong political fight which is looking having more rounds to come later and you can find that out from the republican senator Cruz’s reference to the possibility of having the same stance repeated next year with no durable solution yet amid these political discrepancies between the 2 parties who should solve these persisting financial problems which caused hiking of the debt ceiling more than 90 times in the last century.
On a daily basis, the gold could be yesterday an easy choice for who is looking for a safe haven out of these US problems and also a reserve while the US treasuries yields were going down following the temporary deal.
It has looked as a chance well below 1300$ while the greenback has been exposed in the same time to pressure on selling on fact following the US house representatives’ agreement to reopen the government again and also to delay the talking about hiking the US debt limit to a later time before next 7th of Feb as a temporary solution.
The gold could be underpinned from another side by the greenback weakness as the political risk increased the market anticipations for having the current Fed’s monthly scale of buying unchanged for longer time for pressing on the borrowing cost which is required by the economy and also by the US government which is looking for a road to have lower financing costs otherwise, we are to have slower growth rates in US and more doubts about its creditability.
The gold has already found strength by these stimulating efforts by the Fed which weighed down on the greenback for giving cheaper liquidity to encourage the investment again following the credit crisis until the middle of last April when the markets started to price in a close end of the Fed’s QE can be cutting it in a later time this year to be ended next year and that speculation has been confirmed by Bernanke last June when testified in his semiannual testimony in front of the congress financial committee.
But now with the current exposure to liquidity draining off again, the Fed have many reasons to be stick to the QE for longer time to support the housing market and labor market amid relatively low rate of inflation in US as you can see that the PCE which is the Fed’s favorite gauge of inflation coming down in August to 1.2% yearly from 1.4% in July has been revised down to 1.3%.
So, as I have mentioned to you before in previous reports, the road for having growth and in the same time better crediting and financing conditions can be met by lower USD value.
The gold which is still stick to 1320$ since its jump yesterday is in need now to get over its previous lower high at 1330$ to have better bullish signs before meeting another resistance at 1352$ which came too as another lower high well below its H4 200 moving average in its way down to 1251$ from 1433$ which has been reached on the previous worries about imposing US military action against the Syrian regime which fueled the energy prices while getting down below 1300$ psychological level can be met by supporting level at 1269$ before its recent bottom at 1251$ and getting below it too can be met by another supporting level at 1242$ before 1207$ which can be followed by 1180$ again
Kind Regards
FX Market Strategist
Walid Salah El Din
Mob: +20 12 2465 9143
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