Gold slips as stocks end the week on a high
Stock markets are on course for another positive session, capping off another strong week and a fourth consecutive one in the green. Sentiment is clearly improving and the bulls are gathering momentum as previous headwinds slowly morph into tailwinds for the markets.
A rebound in the dollar over the last week or so has taken some of the shine off gold just as it was toying with the idea of breaking above $1,300. But that doesn’t seem to be responsible for the drop we’re seeing today, with the greenback looking relatively flat as gold slips around half a percent.
Instead, an improvement in risk appetite is probably the main driver here. This hasn’t really weighed on gold over the last few weeks as stocks have rebounded strongly off their lows but indices are now facing some interesting tests as they try to break through levels that prior to the sell-off were strong support zones.
Markets buoyed by progress in Sino-US talks
At the moment they appear to be standing up to the challenge which would suggest the rally in stocks has more to run and this may not just be a corrective move in a bearish market. Earnings season will likely have a big say in whether the rally is sustained, as will the Trump administration which always has an eye on the stock market.
Reports overnight that members of the administration – most notably Steve Mnuchin – are proposing removing some tariffs in order to draw more concessions from their Chinese counterparts are certainly supporting risk appetite. The trade war has been a strong headwind for markets for months and serious progress and the removal of tariffs will turn it into a tailwind.
Oil gains on improved sentiment
Oil has been another benefactor of the improvement in risk appetite. This time last month, doom and gloom had engulfed the markets and people’s expectations for 2019 were becoming more pessimistic by the day, weighing heavily on oil prices. The bounce in markets and improvements on the fundamental outlook have prompted a similar rebound in oil which is continuing today.
WTI and Brent still face significant tests around $55 and $65, respectively, but momentum is very much with the bulls and I wouldn’t be surprised if they’re broken in the not-too-distant future.
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