China – U.S Meeting Results in Trade War Truce

December 3, 2018 - 5:59pm

 by Gary Wagner

The face-to-face meeting held by the presidents of both the United States and China resulted in some real forward movement. Both countries have decided to begin a formal truce for the next 90 days. During this time no new additional tariffs will be added on either side.

Given the complexity of the current trade war and the number of issues, as well as products at stake, there was no possibility that a single meeting by the two presidents could resolve all of the issues. However, prior to the meeting at the G 20 in Argentina both countries were posturing with threats of additional and higher tariffs on both sides.

The United States agreed not to impose new tariffs on the remaining $2 billion worth of Chinese imports. Trump also agreed not to raise the current tariffs which were set at 10% to 25% on January 1 as originally announced. According to President Trump “China has agreed to reduce and remove tariffs on cars coming into China from the US. Currently the tariff is 40%.”

This agreement to begin a truce had an extremely positive effect on U.S and global equities. The United States equity market experienced a rally of about 1% in the Dow and 1.5 % in the tech heavy index, the NASDAQ composite.

The agreement also had the net effect of weakening the U.S dollar. The dollar index lost ground today and closed at 96.89. Reciprocally a weaker U.S dollar was extremely bullish for the precious metals complex with gold futures gaining over $10 on the day.

Spot gold also had a very respectable gain. Physical gold is currently fixed at $1230.30 which is a net increase of $8.20 on the day. On closer inspection we can see that the majority of today’s gains were directly attributable to traders bidding up the precious yellow metal. When we break down the components of today’s price increase in gold, we see that $5.10 was directly attributable to buying, with the remaining $3.10 a result of a weakening US dollar.

On a technical basis gold has firm support at $1218 per ounce, that is the .618% retracement level. Resistance can be seen first coming in on a minor level at $1237.30. That level is based upon two former tops in the marketplace. Above that price point is $1247 which is a .50% Fibonacci retracement level. The 200-day moving average provides us with the major resistance level at $1262 per ounce.

Lastly as we pointed out on Friday’s show, it is the fact that the short-term 50 day moving average has crossed above the 100-day moving average that provides us with technical evidence that gold has moved from a short-term bullish trend to a medium-term bullish trend. If by chance gold is able to breach the 200-day moving average we would have technical evidence that gold is now in a long-term bullish trend.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

Sentiment Indicator:

Gold Forecast: Proper Action
On Wednesday November 28  sent out two Trade Alerts this morning. The first:  Buy December Gold ATM (At the market) 1218.80. Place Stop @ 1204.13. The second: to add a contract in the February (GC G19) contract month.
 
Yesterday, December 2nd we sent out a trade alert to roll over the December position to Febuary. You made a total of $600 per contract on the roll over.
You are now long 2 contract of Febuary gold at an average price of $1229 (current $1236)
 
Maintain long two Febuary gold @  $1229 (ave), and stop @ $1210.13

 

Gold Market Forecast

As we spoke about last week the future direction of precious metals as well as the US dollar were going to be highly influenced by the face-to-face meeting between Presidents Trump and Xi at the G 20 meeting in Argentina last weekend. We also spoke about the fact that the current dispute is much too complex to believe that it could be result in a single meeting, however if we had some real headway and positive statements coming out of their face-to-face talk, we would see weakness in the US dollar, as well as a return to rally mode in the precious metals markets, specifically gold.

That is exactly what happened the announced truce move the dollar lower fueled a strong rally in US equities and took the precious metals to higher ground. We believe that this is a trend that will continue at least throughout the beginning of the truce. On today’s show we will detail her current trade along with our exit strategy.