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Gold stays below $1500 as trade optimism confronts geopolitical tension, cautious sentiment

  • Gold fails to hold on to recovery gains after the US and China took steps to ease trade tension.
  • The US-Iran tussle and markets’ cautious mood ahead of the key data/event limit further declines.

In a reaction to the US-China bid to recede global trade tension, Gold prices refrain from extending the previous day’s recovery while taking rounds to $1,493 during Asian session on Thursday.

China’s release of the list of the US goods to be exempted from the tariffs, Premier Li Keqiang’s positive attitude towards solving the US-China trade tussle and Taiwan’s intent to buy US$3.6 billion agricultural products from the US shows that the Asian nation is serious towards scaling the trade war backward. On the other hand, the US President Donald Trump also gave additional fortnight’s time to the dragon nation before increasing tariffs on $250 billion worth of Chinese goods from October 01 to 15th of that month.

Even so, investors remain a bit cautious as the European Central Bank (ECB) and the US headline inflation data, Consumer Price Index (CPO), could pour water on the optimists.

Also adding to the risk aversion could be the tension between the US and Iran as the Middle East nation is still not pleased after the firing of the American National Security Adviser John Bolton.

Westpac holds a dovish view for the ECB outcome as it says, “At the very least, a cut in the wholesale deposit rate from -0.4% seems assured. Westpac looks for -0.5%, while market pricing leans towards -0.5% but with a sizeable risk of -0.6%. A tiering system could also be introduced i.e. the lowest rate would only apply to excess reserves over a certain amount. Several hawkish ECB members have publicly argued against restarting the QE program that was shuttered end-2018 after EUR2650bn in bond purchases. But Draghi and other key officials among the 25 Governing Council members seem likely to form a consensus to resume sovereign bond purchases, albeit perhaps not actually starting until December. Our base case is EUR40bn per month.”

Further, the US CPI is likely to remain as the key challenge for the Federal Reserve as Core CPI shows a mixed sentiment with MoM reading expected to slip to 0.2% from 0.3% while YoY data may rise to 2.3% from 2.2%. The headline CPI bears the consensus to remain unchanged at 1.8% on a yearly format.

Technical Analysis

FXStreet Analyst, Ross J Burland, holds a bearish view for Gold prices as he says:

"Despite the meanwhile correction, gold is heavy while below the 21-day moving average as it presses on the 23.6% Fibonacci (Fibo) retracement of the July lows to recent swing highs as well as trading below the 1500 handle. Below the 1,480 target, 1,478 comes as the 13 August volatility spike low which guards the 19 July swing highs at 1,452.93. Bulls will need to get back above 1,550 which then guards prospects for 1,590 as the 127.2% Fibo target area."

China M2 Money Supply (YoY) above forecasts (8.1%) in August: Actual (8.2%)

China M2 Money Supply (YoY) above forecasts (8.1%) in August: Actual (8.2%)
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