Gold prices gained some ground on Tuesday mostly due to financial releases from the US with its inflation data released worse than expected but at the same time insecurity coming from the latest developments on Brexit, were the UK is currently making attempts to land an orderly departure from the European Union.

Both subjects gave a positive momentum to the shiny metal that was left oversold since last week below 1300 USD per ounce.

Brexit could have negative impact

To start with, safe haven demand could be picking up due to many looming fundamentals that create risks that affect more than one economy.

For example, the case of the UK leaving the European Union is said to have a potential negative impact on the Eurozone’s economy as well.

Eurozone’s economy is already forecasted to grow on a slower pace than initially anticipated and depending on the scenario of the UK’s exit, this slowdown could be exemplified even more.

‘Hard Brexit’ scenario raising concerns

Furthermore, various reports indicate the Eurozone’s GDP rate could be hit extensively dropping to a lower rate if the UK does not leave the EU with an orderly Brexit agreement.

Yesterday, Parliament rejected May’s updated deal, raising concerns of a “hard-Brexit” scenario before the planned departure date on March 29.

Gold prices reacted positively to the event as risk rose substantially, with the effect maintaining its support on the precious metal through the Asian session into today’s early European morning, were the shiny metal trades near the highest level in two weeks.

In our opinion, the Brexit matter still has many rounds to go in the following weeks with more volatility still to come.

Safe-haven instruments could be a very attractive choice in the scenario of a no-deal Brexit and could trigger a more intense demand for safety assets.

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US Risk sentiment empoweres Gold bulls

Moreover, Gold moved higher on Tuesday as the dollar dropped after unexpected weak U.S. inflation data supported the risk sentiment and empowered the Gold bulls.

Various analysts rushed to relate the unexpected negative news to the Federal Reserve’s decision to hold back on interest rate hikes, for the time being.

Weaker inflation data repels the Fed’s potential to raise interest rates which could have been a strong message that activated the precious metals rally.

Then again, lower interest rates reduce the opportunity cost of holding non-yielding bullion and weigh on the dollar.

On the contrary, on Monday the US Core Retail sales and retail were released with a better figure compared to previous readings and had a negative effect on gold prices as it helped the greenback gain support.

Both figures turned from negative prior reading to positive currently proving the US economy is still holding its ground and has not indicated solid financial data that point to a downsizing.

Furthermore, the same message was sent from last week’s employment report which indicated a strong decrease in job creation but at the same time displayed a decrease of 0.1% of the unemployment rate which is an excellent figure just below the 4% target.

What to expect from Gold Market?

As a conclusion, traders overcome by speculation and emotions cut their net long positions in COMEX gold in the first week of March, when the precious metal dropped below the key 1,300 round number level.

Prior to that drop, Gold had been in a strong bull run since the start of December 2018.

Can the precious metal be taking a deep breath in order to make an even stronger comeback at higher levels?

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