Fundamental Forecast for Gold[1]: Bearish
Gold Talking Points:
- Gold vulnerable to trade wars as the dollar climbs in value
- A rather quiet economic calendar[2] has gold looking to trade wars for larger moves
- Retail positioning remains bullish with 85% of clients net-long
Gold Price Unchanged from Last Week
After some trading above and below last week’s close, it looks like gold is poised to end Friday at the same level as Monday’s open. Around the $1195 area, the metal continues to act against its traditional status as a safe-haven asset. This is largely due to the strength of the US Dollar[3], as ounces of gold are denoted in Dollars. With that in mind, the Dollar basket has shown considerable strength in recent months and that has contributed to gold’s decline.
Gold Price Chart 60-Minute Time Frame, August 31st – September 7th
In the hourly chart above, we can see the impact of trade wars on gold. Once reports came out that President Trump asked his aids to push forward with the $200 billion in tariffs on China, the precious metal proceeded lower mid-day in the Friday session. Looking at the Dollar basket, you would see an inverse of this price action.
Further, the re-emergence of trade wars will likely exert some pressure on emerging markets other than China. Emerging currencies were just beginning to stabilize and that was reflected in a weakening Dollar. Now that the $200 billion in tariffs seems probable, expect emerging market weakness to re-emerge somewhat.
Gold Upside Limited
Even if downward pressures were to wane, events to propel gold higher are limited.
