Gold Trades Lower, the Dollar Moves Higher, and the Trade War Deepens
Gold traders returning from an extended three-day holiday weekend were met with strong selling pressure and lower pricing in gold, silver and platinum. As of 2:00 PM EDT gold futures, basis the most June 2019 contract is currently trading down by $5.90, and fixed at $1277.70.
On a technical basis major resistance is at $1286 per ounce, the .38% Fibonacci retracement. Major support is $20 below that price point at $1267, the .50% Fibonacci retracement. Now for the last three consecutive trading days, gold has tested the highs around $1286, with no success of breaching above that price.
With concern about the trade war muted, at least for now, President Trump said the “US wasn’t ready to make a trade deal with China.” Speaking at a joint news conference Monday in Tokyo with Japanese Prime Minister Shinzo Abe. The lack of apprehension as the trade war divide deepens and a resolution diminishes is perplexing.
According to ABC News, China state media was playing down the escalating trade war, however that changed in mid-May after “Beijing’s top trade negotiator, Vice Premier Lui He, returned from Washington without a deal,”
According to Bloomberg News “The U.S.-China trade war has entered a dangerous new phase. Tariffs are up and there’s the threat of more to come. A quick fix is still possible, with Presidents Donald Trump and Xi Jinping set to meet at the G-20 summit next month. But at this point, it looks more likely that the trade war will be long, messy—and expensive.”
Bloomberg economists Dan Hansen and Tom Orlik said, “If tariffs expand to cover all U.S.-China trade, and markets slump in response, global GDP will take a $600 billion hit in 2021, the year of peak impact.”
Hanson and Orlik’s nightmare scenario adds a 10% equity market drop to the across-the-board 25% tariffs. In that case, China, U.S. and world GDP would be 0.9%, 0.7% and 0.6% lower in mid-2021. In this situation, the equity market drop acts as a further headwind to consumption and investment, compounding the impact.
Today was a day of mixed signals, consumer confidence at a six-month high, the 10-year Treasury note at a 19 month low, and an equities market that opened higher on the day and then reconsidered the potential economic repercussions that the trade war could lead to. In other words, hold on, the financial markets are going to get a lot more volatile before we see smooth sailing.
Wishing you as always, good trading,