Note from the MD: Increasing volatility leading some investors to seek shelter in gold

The ASX 200 has remained largely flat again this week, with the index being off just 2% over the past month to 17/5/23. The S&P 500 is only down 1% during the same period, but the Volatility Index (VIX) surged 5% overnight to land on 18. Traditionally viewed as a bellwether of the economy, copper has had a dramatic plunge of more than 10% during the past month, after China’s demand recovery disappointed markets a few weeks ago.

The ASX 200 has remained largely flat again this week, with the index being off just 2% over the past month to 17/5/23. The S&P 500 is only down 1% during the same period, but the Volatility Index (VIX) surged 5% overnight to land on 18. Traditionally viewed as a bellwether of the economy, copper has had a dramatic plunge of more than 10% during the past month, after China’s demand recovery disappointed markets a few weeks ago.

The US dollar index has had a slight move up over the past week, which has corresponded with gold looking to consolidate around US$2,000 and make a break for the crucial US$2,100/oz barrier. The US debt ceiling is taking investor focus as mixed economic data, weak corporate results and ongoing negotiations in Washington dampened risk appetite. Investor’s seeking safe haven amid market volatility are increasingly turning to gold to reduce the risk in their portfolios.

US Politicians are desperately trying to hammer out a deal on the debt ceiling along a compressed timeline, which has made the rally in the US dollar index, which is weighted against the Euro, Japanese Yen, Great British Pound, Canadian Dollar, Swedish Krona and the Swiss Franc – all the more peculiar. Treasury yields have extended their rise.

While some economists say that the RBA could very well raise rates again in June, money markets are currently pricing in a mere 12% chance of this happening. However, markets are ascribing a 58% chance of another hike by August

The ASX 200 (XJO) chart shows the market has been trading in a relatively narrow range, indicating a period of consolidation. The support level is seen around 6,946, where the price has consistently bounced off, while the resistance level is observed near 7,364, where the price has faced selling pressure and struggled to break through.

Volatility appears to be relatively low, as indicated by the Aaverage True Range (ATR) remaining at a moderate level. The Relative Strength Index (RSI) hovering around 50 suggests a lack of strong momentum from either the buyers or the sellers.

Given the sideways consolidation phase, it is challenging to predict the direction of the next significant move. Traders and investors should closely monitor the key support and resistance levels for potential trading opportunities. A breakout above the resistance level at 7,364 could indicate a continuation of a bullish trend, potentially leading to higher prices. On the other hand, a breakdown below the support level at 6,946 could signal a bearish reversal, potentially resulting in a downward move.

In the face of high inflation, steady interest rate hikes and an increasingly likely recession, gold has been standing strong, hovering around the US$2,000/ounce mark. With the precious metal back on the radar, investors will be evaluating gold’s recent performance, whether it will break the next resistance level and as some claim may continue its bull run to breach US$3,000/ounce by the end of 2023.

To dive into and explore these possibilities, we have invited commodity experts, mining veterans and industry insiders who have worked for some of the world’s biggest mining companies and investment banks, to discuss trends in the market and how to identify potential opportunities. Click here to join part two of The Insider: Investing in Gold Summit on 22nd May at 2pm (AEST).

 

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