Buying the Dip Amidst Growing Trade Dispute

October 9, 2018 - 5:48pm

 by Gary Wagner

Although gold prices continue to be range bound, gold is trading fractionally higher on the day. Gold futures basis the most active December Comex contract is trading up $4.80 and fixed at $1,193.40.

Gold prices hit this year’s lowest low on August 16 when trading to $1,167 per ounce. What followed was a measured rally which took gold prices back above $1,200 and trading as high as $1,220. From that point forward, gold pricing has been trapped in a narrow and defined trading range between significant resistance at $1,220 per ounce and support at $1,185.

Yesterday, strong selling pressure took gold prices from $1,206, just below the 50-day moving average, and closed at $1,188. Today traders bought the dip, which resulted in gold gaining almost five dollars on the day.

The key to current resistance has been firmly embedded in gold’s 50-day moving average. On Tuesday of last week, gold traded strongly higher breaking above $1,200 and closing just at the 50-day moving average. For the remainder of the week, gold prices traded just below the 50-day moving average, but above $1,200 per ounce.

The tight and defined range that was created from trading last week was broken yesterday with gold once again trading below $1,200 and an intraday low just above the lows of September 20 when gold traded to a low of $1,184 per ounce.

Today’s modest gains received tailwinds from increased tensions between the United States and China.

As reported by the New York Times, “In unusually blunt language to an American secretary of state, China’s foreign minister accused the United States on Monday of interfering in its internal affairs and of harming his nation’s interests on the question of Taiwan.”

The article cited a tense face-to-face exchange with Secretary of State Mike Pompeo, and the Foreign Minister, Wang Yi, who accused the Trump administration of “ceaselessly elevating” trade tensions and “casting a shadow” over relations between the two countries.

Recently, this type of heated exchange between the trade negotiators of the United States and China has resulted in a stronger U.S. dollar and declining prices in gold. However, that paradigm might be shifting in that the U.S. dollar traded fractionally lower today and gold gained ground.

The question then becomes: Has there been a paradigm shift in reaction to a further escalation in trade tensions between China and the United States? If that is the case, we could see the U.S. dollar and gold prices gaining ground if the current trade dispute ratchets up into an out and out trade war.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer

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Gold Forecast: Proper Action

We are flat with no active trades in gold or silver. 

Gold Market Forecast

Of today’s fractionally higher gold prices is whether or not we are seeing a slow but methodical paradigm shift in how the market is reacting to the potential that the current trade dispute will move up one level and become a trade war. A heated exchange between the negotiators from the United States and China has moved our current trade dispute into a war of words.

Previously this type of heated exchange would result in a sharply stronger US dollar and thereby putting pressure on gold prices. Such was not the case today as the dollar traded fractionally lower and gold traded modestly higher. We will need to see if today’s market moves were an indication of a paradigm change.

Sentiment Indicator:
Gold -> Neutral
Silver -> Neutral
S&P 500 -> Bullish