September 10, 2018

IronFX, Gold Market Outlook - Are safe heavens the way out of trade wars?

Gold is lower than last week’s trading activity, however at the mid of the European session which we are currently going through, we see some bullish tendencies with the demand for Gold growing.

This article is originally referred from IronFX News.

The strong U.S. nonfarm payrolls figure released on Friday, was another greenlight for the US economy, which states that domestically the US was and is in great shape.

However exogenous matters remained unresolved and may have worsened, while market participants are more interested in these issues at the moment.

In our humble opinion, and in accordance to what we view as a representative market overview, Gold is not in the correct pricing range.

At various points of time, financial instruments, regarded as barometers, much like Gold, can be overlooked because the focus is placed on other aspects of the financial world.

At the moment, most emphasis is put on the tariffs imposed by the US. President Donald Trump stated he is ready to enact extra tariffs on a further $267 billion worth of Chinese imports, increasing earlier promises to levy duties on $200 billion worth of Chinese goods.

He is basically going all out with China, intensifying the situation further but also displaying his unpleasant outlook on Chinese products.

Furthermore, since these tariffs have not been enforced yet, the overall facts of the repercussions following are not in focus and the market is in ignorance of them.

In our opinion, Gold could bounce upward on this fact as the uncertainty coming from the matter has not been experienced yet.

We believe, when the tariffs take place and public business are caught in the middle of the unknown, that’s were Gold will be needed the most and most probably make its comeback.

Until now the tariffs widely referred to as the trade war has been mostly between US and China.

When the matter escalates to a company level, similar to what is happening with Apple at the moment, that’s when safe heavens will come into play and arise.

Donald Trump was quick to warn Apple to move its production to the US, which confirms the fact that many US companies could be hurt, and they way out for investors could be safe heavens.

The US is also awaiting on the U.S. Federal Reserve interest rate hike in September, yet the Chinese trade war is of greater importance because this matter goes from national to international interference and more governments are involved.

Again, it is our opinion that Gold is underpriced by the market, and is looking to jump unexpectedly once the US dollar loses some strength.

This can be done on a day to day basis and does not need months in order to react.

Gold’s volatility is very strong in September and could go on a 15 USD range from the Asian session to the US session.

Another interesting ongoing matter is Turkey’s recent economic devaluation.

The Turkish currency has been dropping since the early months of 2018, sliding over 6% against the dollar in the first four months.

Lately, it was confirmed that Gold demand in Turkey has risen during the past weeks due to a slump in the value of the lira, with consumers and business turning to the shiny metal for protection.

Furthermore, emerging markets represented by currencies such as the Argentine peso, Brazilian real, South African rand, Indonesian rupiah and Indian rupee dropped as investors fear these export-oriented economies will be caught in the escalating trade war.

As a conclusion, we would like to caution our readers on the fact that in 2007 before the mortgage financial crisis in the US, the so called junk mortgage bonds representing the industry were ski high even when indications that something wrong was going on.

Now even though, the market is operating under a currency war, mostly USD vs various other currencies, we still see safe havens stabilizing lower.

When the effect starts showing, we may see a huge appetite for Gold increasing instantly with market participants turning even to physical gold bars.

A very smart investment with no charges further than purchasing it and the place to keep it.

XAUUSD 1 Hour Chart

Gold is lower than last week’s trading activity, however at the mid of the European session which we are currently going through, we see some bullish tendencies with the demand for Gold growing.

We support the idea that Golds previous movement between 1208.35 level and 1197.27 level could persist.

It must be noted that levels have changed since last week, as the market has proceeded to change trend.

Regarding the RSI indicator in the 1 hour chart above, we could see an indication of an indecisive market.

However, the RSI indicator in the 4 hour chart, is below the reading of 40 indicating an indecisive market with most probabilities leaning towards an upward movement.

If the Bullion is overtaken by a strong bearish movement, we could see it aim for our $1,191.08 (S1) support line and even breach it aiming lower for the $1,184.90 (S2) support hurdle.

On the contrary, if the precious metal is undertaken by a strong purchasing trend, we may see it breaching the $1,197.27 (R1) resistance level and aim higher for the $1,202.00 (R2) resistance barrier.

If the (R2) level is breached, Gold could move even higher heading towards the area of our 1208.36 (R3) resistance level.

Original Source: IronFX News

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