Gold Attempts to Find Price Support

Gold has been attempting to form a baseline level of support over the last three trading days and finished fractionally higher in trading today. Gold Comex futures finished up approximately $2.50 today and closed at $1,291.90 (most active June contract).

Gold closed dramatically lower this week after losing $28 in trading on Tuesday. Tuesday’s selloff was significant in that it broke below the psychological support level of $1,300, which is also where the 200-day moving average is fixed.

In fact, damage from the selloff on Tuesday resulted in the largest weekly decline seen in gold over the last five months. Selling pressure has been largely a result of a strengthening U.S. dollar. However, this week it was rising yields from U.S. bonds and notes that added a new level of selling pressure.

The dollar has gained approximately 5.5% in value since the week of February 12. The dollar rally, which began in mid-February, marked the conclusion of an extended correction occurring over the calendar year of 2017. 

The extended correction began at the end of 2016 when the dollar traded as high as 103.60. Throughout 2017 the dollar corrected, trading to a low just above 88. The net result was a 16% decline in the dollar index.

The fundamental forces at play could continue to manifest strong bearish sentiment towards the precious metals complex. 

Superpower Stare Down

However, two geopolitical wildcards could emerge as extremely bullish factors for gold: the current trade dispute between the United States and China, as well as the upcoming summit between the United States and North Korea.

In both cases it seems that all countries involved are posturing, a stare down of sorts that typically occurs at the beginning of any negotiation. The outcome of the current trade dispute could undoubtedly shift in market sentiment favoring demand for safe-haven assets such as gold. Negotiations this week did not produce any solutions that could alleviate the current trade tensions between these two superpowers. The outcome of talks this week seem to deepen the chasm between our two countries.

President Donald Trump said Thursday that China had become too “spoiled” and he had lowered his expectations for negotiations.

Although the plans for a historic summit between North Korea and the United States are still intact, this week North Korea threatened to cancel the summit.  The White House interpreted this statement as posturing and expects this behavior to continue up until the summit begins.

Wishing you as always, good trading,