Summary:
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Risk-off flows seen elsewhere not evident in Gold
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Turkish Lira drops to new record lows
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Gold falls below 1200 to hit lowest level since March 2017
The main news today continues to surround Turkey and the ongoing slide in the Lira, with the currency sinking to another fresh all-time low. Given the recent plunge in not only the TRY but also other EM markets - the South African Rand dropped sharply by 10% during the Asian session - it is perhaps surprising that the US markets remain higher. Contagion has once more become a key buzzword, with the number of news articles mentioning “contagion” experiencing a huge spike higher on Friday.
There’s been a huge spike higher in the number of news articles that mention the word “contagion” since the Lira crisis unfolded further on Friday. Despite this the major US indices appear to remain relatively unaffected. Source: Bloomberg
The developments in Turkey can be quite clearly seen in the bid behind safe-haven currencies such as the USD and JPY but as of yet other markets such as US indices and Gold appear to be relatively unaffected. Gold in particular is a surprise given that the precious metal is often seen as the ultimate safe haven, but the market has actually fallen to its lowest level in almost 18 months in dipping below $1200/oz this morning. Looking at the correlation between Gold and the VIX (VOLX on xStation) it is apparent that these two instruments are currently exhibiting a strong negative correlation. In fact you have to go back 5 years to 2013 to find a time when these assets had a more strong inverse correlation.
Gold and the VIX has traditionally experienced a positive relationship in recent years, but the current correlation is actually at its most negative since 2013. Source: Bloomberg
Gold has attempted to make another leg lower today, taking out recent support around 1204 and in doing so trading down to its lowest level since March 2017. The market has been in a downtrend for several months now and after a recent period of consolidation has turned lower once but found some support at the prior swing level of 1195. Should price drop below here then 1181 is the next level to look to from a swing perspective on the downside. It’s not unless the market can close back above the 1205 level that this move would be negated, and if that doesn’t occur then the path of least resistance appears to remain lower.
Gold has fallen lower once more today, with price dropping to the next swing level at 1195 after breaking through support of 1204. Source: xStation
