July 19, 2018

IronFX, Gold Market Outlook - Golds plunge gradually continues

Strong financial data coming from the US has equally strengthened the USD which has the effect of moving in the opposite direction of Gold.

This article is originally referred from IronFX News.

Gold furthered its fall to a one-year low on Thursday as the U.S. dollar rallied after Fed Chairman Powell proclaimed the necessity for further interest rate hikes amid strong financial data.

Powell, added expectations for at least two more rate hikes this year and continuing in a more positive note said that steady growth is expected for the near future.

All the pre mentioned news has significantly participated in Golds weakening, and have all been confirmed in a monetary policy report passed to Congress by the Fed on July the 13th.

However, the one matter that creates fear within the US is trade wars. The US remains cautious on the tariffs enacted on steel and aluminum as the issue creates some worries for the future.

The US has announced that theses tariffs will be enacted around the world and countries have shown their disagreement on the matter.

If resistance is shown and the US is not willing to negotiate, geopolitical relationships could be torn and some countries could turn to vengeance.

The classic example is the fallout with China, which has not yet revealed its consequences on the financial markets.

The Chinese, are a major force in the global economy and due to the size of their economy can create turbulence.

Also, because they have giant investments around the globe, they are powerful in different continents.

So, how President Jinping Xi decides to play his cards can greatly affect the USD and subsequently Gold.

In our opinion, retaliation tariffs could force the precious metals prices and demand to pick up.

During the past week, US representatives challenged these retaliation tariffs at the World Trade Organization demonstrating their frustration.

They also added that retaliation tariffs breach the WTO member’s obligations under the WTO Agreement.

The US could be forced to create different agreements per country so it protects its very important geopolitical relationships but also to be able to bargain further.

Trade tensions reappeared Thursday as U.S. President Donald Trump said that the U.S. could negotiate a trade deal with Mexico.

Whatever the case, the US does not seem to be backing down from the trade tensions. In our opinion gold prices started dropping when the US somewhat amended its relationship with North Korea and Kim Jong Un.

North Korea’s secretiveness and unchanged stance on nuclear testing rockets, was and still remains a huge threat to the world.

However, when Kim and Trump met in Singapore, the fears were eased and uncertainty dropped along with Gold prices.

Gold has dropped more than 10 percent since reaching a peak of $1,365.23 in April, and is currently trading at 1 year lows.

Moreover, Europe, with the ECB announcing the end of its QE program by 2019, dropped the demand for holding the precious metal as an investment asset.

Among traders, Gold is on a sell sentiment and has managed to lose its superpowers being used to hedge uncertainty.

Gold’s downdraft hasn’t occurred without confusing the global market, as the asset is ignoring worries tied to trade wars, which it should have acted as a shield towards.

XAUUSD Daily Chart

The precious metal with its downfall has broken all are 3 previous support levels now turned to resistance. 1236.68 (R1), 1247.50 (R2), 1258.50 (R3).

If Bullion keeps dropping, it could move below are 1212.14 (S1) Support level and break it aiming for the 1198.14 (S2) Support barrier.

Gold can also move in a sideways motion between the 1236.68 (R1) Resistance level and the 1212.14 (S1) Support level.

However, if Gold is overtaken by a bullish sentiment, it could move upwards to the) Resistance level and stabilize around that area.

Original Source: IronFX News

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