Trade War Truce Creates Solid Risk-On Market Sentiment and Selling Pressure for Gold

Gold prices plunged immediately upon opening Monday morning in Australia. This in response to a perceived favorable outcome of the one-on-one talks between presidents Trump and Xi Jinping at the G 20 meetings held in Osaka Japan. The keyword was “truce”, with both sides agreeing not to invoke further escalation of the trade war between our two superpowers. In essence the net result was that both countries pledged to once again begin to trade negotiations at a later date.

As of 4:30 PM EDT gold futures basis the most active August contract is currently at $1386.20, a net decline of $27.50 on the day. After opening in Australia yesterday at $1401.80, traders and market participants increased the pressure taking gold below $1400 per ounce and traded to a low of $1384.70 before prices inched just above the low achieved over the last 24 hours.

This selloff comes in unison with a dramatically higher US dollar and a return to extremely favorable risk on market sentiment taking US equities higher on the day. The Dow Jones industrial average in almost ½ a percent today, and after factoring in the daily gains of 117 points is currently fixed at 26,717.43.

The US dollar gained strength and the index closed today at 96.37 which is a net gain of almost ¾ of a percent. This accounting for a solid percentage of the price decline experienced in gold. Considering that gold futures gave up 1.93%, and the US dollar gained .74%, selling pressure was greater than dollar strength contributing well over 1% to today’s price decline in the precious yellow metal.

As we spoke about on Friday’s recap, a favorable outcome regarding the talks between the United States and China would certainly have a dramatic impact on gold prices as they began their trading week in Australia. That is exactly what traders witnessed with both China and the United States announcing a truce in the current trade war in which both sides vowed to not escalate negative actions and  set the tone for negotiators to return to the table.

Our technical studies indicate potential support for gold at two distinct price levels, both based upon Fibonacci retracement price points of this last rally. The lowest we believe this current selling pressure will take gold to is approximately $1350 which is the .618% retracement of the price move from $1292.02 $1442. Above that .38% - .42 % retracement level which comes in at 1379 to $1385 per ounce.

Wishing you as always, good trading,