Amidst Market Turmoils, Will the ‘Golden Boy’ Shine Again?

14 Mar 2023

By Eric Lee, Sales Director, Phillip Nova

Comex Gold futures have been hovering close to the 250-day moving average since mid-February. Volume analysis over the past four years shows that there is strong support at $1850, followed by $1675. $1850 is also where its 250-day moving average is at currently. This support level may indicate a potential buying opportunity for traders.

Recent news of the collapses of Silvergate Bank and Silicon Valley Bank (SVB) have caused market fear of a contagion effect. Silvergate Bank was a California-based bank that focused on serving clients in the cryptocurrency industry. However, the bank collapsed on March 8, 2023, due to its exposure to the failing cryptocurrency exchange FTX. The collapse of FTX caused panic among Silvergate’s customers, and many rushed to withdraw their funds, leading to a bank run. The sudden bank run and capital shortage left Silicon Valley Bank facing an uncertain future. On March 10, 2023, FDIC placed SVB into receivership. This meant that the bank was shut down by California’s banking regulators, and FDIC effectively took control of the bank.

The fear of a contagion effect may prompt traders to look for safe-haven assets such as gold. MACD bullish crossover together with Gold price breaking the resistance of $1850 indicated a possible upward momentum to continue. Resistance of $200 can be where Gold price is heading next, and $1850 becomes the near support should the upward momentum continue the following week.

When performing market cycle analysis, it was noted that Gold has a seasonal tendency for bullish bias between the mid-March to mid-April period. This seasonality may be a potential buying opportunity for traders.

In addition to the recent news of the bank collapses, several other factors may impact the price of gold. Even though inflation had fallen from its high in June 2022, it is still hovering at a relatively high level, adding challenges to central bankers all over the world as they adjust their monetary policies to fight off inflation and at the same time keeping the economy from slipping into recession. Geopolitical tensions like the on-going Russia-Ukraine war and on and off spats between the world’s largest economies (U.S.A. and China) can impact investor sentiment and market volatility as well.

Commodities can be notoriously volatile, and gold is no exception. Market speculation and unexpected events can lead to sudden price swings, making it important for traders to manage their risk appropriately.

Based on intermarket analysis, USD/CNY has a 65% probability of leading Gold by 8 months. From the chart above, candlestick bars are the daily data of Comex Gold. Green line is the price of USD/CNY pushed forward by 8 months. From its projection, if this correlation remains the same over the next 3 months, this implies that there’s a 65% chance that Gold will rise over the next 3 months.

In conclusion, the recent collapses of Silvergate Bank and Silicon Valley Bank have led to a fear of a contagion effect, prompting traders to consider safe-haven assets like gold. Technical analysis and market cycle analysis indicate that there may be a buying opportunity for Comex Gold futures, and historical trends suggest that gold may continue to appreciate in value over the short-to-mid-term.

GBPUSD is available for trading on the Phillip MT5 trading platform

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An Exchange Traded Fund (ETF) is a marketable security that is formed to track nearly anything, ranging from a specific index, sector, commodity, or increasingly, theme. They are most commonly used to track a basket of stocks, and can typically be accessed through the same channels as regular stocks. ETFs are typically separated into passively-managed ETFs that simply mirror the security they are tracking (e.g. the STI), and actively managed ones that attempt to deliver higher returns or specific investment objectives, often with a pre-specified theme in mind (e.g. ARK Invest’s Innovation ETF).

Why should I trade in ETF CFDs?

ETFs have been growing in popularity over the years. 2020 was the best year for ETFs yet, with global equity ETFs seeing more than $1T in inflows within a 12-month period. Using CFDs to gain exposure to ETFs allows for greater capital efficiency because only a portion of the contract value is required as margin to establish a position.
ETFs are particularly popular with investors seeking a relatively hassle-free investing experience, while desiring exposure to a range of specific and relatively understandable securities. Trading ETF CFDs brings greater convenience by eliminating the need for traders to hold multiple currencies in order to access global ETFs.
An investor wanting exposure to the post-pandemic economic recovery could open a position in the well-known SPDR S&P 500 ETF (SPY), which tracks the performance of the S&P 500. Another investor that may be convinced of the future importance of Environmental, Social and Governance concerns (ESG) may find the increasing selection of ESG-themed ETFs that track a basket of high ESG-rating companies to be a good investment, rather than cherry-picking individual equities by hand. ETF CFDs can act as a powerful tool for traders can profit from both directions of the market by taking on long or short positions.

A look at two ETF CFDs we offer:

1) Has the ARKK been sunk?

ARK Innovation ETF (ARKK) ARKK is an actively managed ETF by ARK Invest that invests in a range of companies based on their innovative and industry-disrupting potential. ARKK’s largest holdings are in companies such as Tesla, Square, and Zoom. ARKK is down around -33% from peaking on 12^th Feb and is currently in the red for the year to date as the market experiences a risk-off outflow of funds. Superstar fund manager Cathie Wood has however been consistently doubling down on her bets, buying even more shares in growth stocks that are going through their own tumultuous periods such as DraftKings, Peloton, Teladoc, and Tesla. In her view, ARKK is playing the long game, and remains steadfastly convinced in the long-term prospects of these growth stocks beyond this current bout of volatility. Similarly on outflows, investors are still betting big on ARKK as ARK Invest has only lost about $1.2B in assets this year across all its six funds, compared to seeing an inflow of $15.1B during the same period. Recently, investors have been nervously eyeing ARKK’s basket of tech stocks as their future earnings potential remain vulnerable to erosion through high inflation – the dominant concern of the market in recent weeks. As commodities – the major contributor to the recent heightened inflation fears – drops sharply from record highs, are investor concerns over hyperinflation overblown?

2) Searching for exposure to Asian equities?

iShares MSCI Asia ex Japan ETF (AAXJ) The AAXJ is currently trading -10.6% adrift of all-time highs seen in February, giving up gains in tandem with an Asia-wide equity sell-off at the time. Given that slightly over 40% of the ETF’s holdings are based in China, the ongoing tumult seen in Chinese equities currently have carried over nearly perfectly in the AAXJ, as Chinese investors take a breather after the stellar gains made over the past year. Looking ahead, Asia – and particularly China, is steaming ahead with its economic recovery. China is widely expected to be one of the best-performing major economies this year, providing a major boost to the outlook for corporate earnings. As the rest of Asia and the world gradually opens up their own economies, AAXJ is likely to again benefit from strong Asian outperformance amidst a strengthening trade outlook.

CFD is available for trading on Phillip MetaTrader 5 (MT5).

Features of trading CFD:

Trade in both the bull and the bear markets
The ability to enter a long and/or short position allow traders to take advantage of both rising and falling markets.
Smaller barrier to entry
Flexible and smaller contract sizes. This means that traders will be able to enter into a contract with a modest amount of capital.
No expiration date or risk of delivery
Unlike futures which commonly have a fixed expiration date, CFD allows traders to perpetually hold the position(s). CFD is cash settled, no need to worry about the delivery of the underlying asset.

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