GOLD PRICES OUTLOOK: BULLISH

• Gold prices could get a boost if the release of the FOMC minutes fuel Fed rate cut bets
• XAU/USD rise may be amplified if trade war tensions bolster case for additional easing
• OECD global outlook could spook investors, magnify urgency for accommodative policy

Gold prices may gain if demand for anti-fiat hedges rises amid deteriorating fundamental factors, causing Fed easing expectations to swell. The yellow metal has found itself being torn. US-China trade war risks are nudging prices upward even as positive economic data applies downside pressure by discouraging additional liquidity provisions from the central bank. That softens demand for anti-fiat hedges.

GOLD PRICES, DECEMBER 2019 FED FUNDS FUTURES CONTRACT, US 10-YEAR GOVERNMENT BOND YIELD

Gold prices charted created using TradingView

GOLD PRICES MAY RALLY ON ESCALATING US-CHINA TRADE WAR RISKS

Last week, mixed CPI reports left gold prices mostly unfazed. Volatility sprang up after Fed Chairman Jerome Powell cooled easing expectations and sent the metal tumbling. However, following news of escalating US-China trade war risks, XAU/USD reclaimed its losses. The source of risk aversion came shortly after China said it is reluctant to commit to agricultural purchases unless the US makes guarantees of its own.

However, it is important to note that gold is not a haven asset. Rather, its attraction as a non-interest-bearing instrument is amplified in an environment where traders are expecting interest rates to fall. Therefore, when news crosses the wires that leads traders to speculate that the Fed will cut interest rates, gold prices typically rise because the cost of holding it is comparatively reduced. Digression aside, back to the trade war.

This includes Washington committing to repealing tariffs in lockstep with phases in their multi-sequential trade agreement. However, US President Donald Trump has previously stated that repealing tariffs in phases was not something the US had pledged to do. Reports also continue to cross the wires that both sides are still struggling to resolve core issues such as those pertaining to intellectual property rights.

FOMC MINUTES COULD BE TAILWIND FOR GOLD PRICES

The publication of the Federal Open Market Committee (FOMC) will likely be the most heavily scrutinized event of the week. Investors will be anxious to get a better idea of how policymakers feel about the outlook going forward, though they already heard a lot this week from several officials. If the text carries dovish undertones, gold prices may tick as demand for non-interest-bearing assets is stoked.

SOFTER GLOBAL GROWTH BOOSTS URGENCY FOR LOOSER POLICY

The OECD will be publishing its global economic outlook this week, which, much like trade wars risks, may stoke volatility and push gold prices higher if it accompanies a rise in expectations of future easing measures. The IMF and numerous other institutions have repeatedly cited weakening international trade as a key source of angst among producers who are reluctant to expand their enterprises if adequate global demand is lacking.

BARCLAYS GLOBAL AGGREGATE OF NEGATIVE-YIELDING DEBT MARKET VALUE IN USD, SPOT GOLD PRICES

The US-China trade war has been one the most influential factors impacting global growth and contributing to the broad trend of world-wide disinflation. The response by central banks has been to cut interest rates as a way to stimulate economic activity and revive inflation has created an environment where anti-fiat assets – like gold – thrive. Therefore, if the report spooks markets, gold prices may edge higher.