- Gold prices fell on Wednesday following positive trade updates in a Bloomberg article.
- The value of gold remains directly correlated to trade headlines – uncertainty prevails which supports gold.
- The US dollar is soft due to economic data and Fed rate cut prospects which also support the outlook for gold.
The value of an ounce of gold dropped on Wednesday following a Bloomberg report. The report indicated that a trade deal between the US and China was in the making. The news comes despite a series of prior and less promising headlines stemming from US President Donald Trump’s ‘chess-play’ in signing the Hong Kong Human Rights and Democracy Act, legislation supporting protesters in the territory.
Gold travelled from a near four-week high at $1,484.09 to a low of $1,471.52 where it met the 50-hour moving average which resides just above the 21-day moving average down at $1,468 which makes for a potentially robust level of support.
Gold remains a favourite hedge to the trade war uncertainties
Given the constant stream of conflicting trade headlines, coupled with the potential negative ramifications for global growth and implications for financial and commodity markets should a worst case, (or just prolonge uncertainty), playout, bears are unable to run away with a one-off headline and hence the price of gold is stabilising in bullish territory. Gold remains a favourite hedge to the trade war uncertainties for its safe-haven properties and market liquidity.
Bloomberg article knocks the wind out of gold
The Bloomberg article reported, as the lead paragraph “the US and China are moving closer to agreeing on the amount of tariffs that would be rolled back in a phase-one trade deal despite tensions over Hong Kong and Xinjiang, people familiar with the talks said.” The article also cited the people saying that Trump’s prior comment, “I like the idea of waiting until after the election for the China deal,” was merely a comment made speaking off the cuff – as to pour cold water on the remark for which sent markets into a tailspin on Tuesday.
Dollar weighed to fresh lows to below 200-DMA supports bullish gold
Meanwhile, the US dollar, for which is directly correlated to the gold price, has picked up a touch from the US session lows following yet another blow to the head in European markets that took the DXY index to its lowest levels since November 4th down at 97.43, a far cry from October and YTD peak of 99.67. Crucially bearish for the US dollar, the bears have pierced the 200-day moving average. Following a turn in sentiment in the US economy due to some recent disappointing economic data the manufacturing sector, Federal Reserve Chairman Jerome Powell’s message that ‘the glass is half full’, has put the Fed under scrutiny again and the expectation of narrowing interest rate differentials is weighing on the US dollar – a positive for Gold.