2019-11-11 • Updated
After the bullish end of the year (thanks to the uncertain comments by the Federal Reserve) the yellow metal has stuck in the range bound market. Let’s find out the fundamental reasons behind it and determine the key levels on the chart.
The first reason is, of course, connected with the behavior of the biggest opponent of the gold – the US dollar. During the first weeks of the year, the government shutdown by the US president Donald Trump pulled the greenback down. Donald Trump asked the Congress to approve 5.7 billion dollars to build the wall on the border with Mexico. The Congress refused and the US president shut the government down in a protest. However, the American currency managed to recover. The opponent of the gold has been rising since January 10.
But why the USD rise didn’t pull the gold lower?
The reason behind it lies in other factors, which affect gold. If you trade for a long time, you probably know that apart from the USD behavior there is also another important thing, which influences the market and the price of gold in particular. Of course, it is market sentiment.
The sentiment in the Forex market was mostly driven by the news on the trade negotiations between the US and China. Since the G20 meeting in Buenos Aires, both sides have been negotiating a lot to bring an end to the trade war. The discussions intensified during 7-9 January, when the delegation from the US was in Beijing. A statement on the talks from the US trade representative (USTR) did not contain any breakthrough but listed the long-lasted topics for the further discussions. In addition, the American officials announced the possibility of easing tariffs on China and the headlines suggested to increase US export to the Asian country to deal with the trade deficit.
Despite the progress, the uncertainties still exist and do not allow the price for gold to fall further. The first uncertainty is connected with the US warning Israel over investments by Chinese tech giants Huawei Technologies Co. and ZTE Corp after the arrest Huawei’s Chief financial officer. Chinese officials reacted negatively to this move. The second issue is the lack of progress during the negotiations on intellectual property rights. The US wants to bring an end to the long-lasting Chinese theft of American intellectual property.
The future direction of the trade talks will be outlined at the end of this month. China's economy Vice Premier Liu He plans to visit the United States on 30-31 January. This crucial event may increase the volatility of currencies and affect the price for commodities as well.
What may affect the gold price during this week?
We need to follow the updates on the comments from both China and the US, as the market is really sensitive to this kind of news. In addition, the dovish tone of the comments by the Federal open market committee members may result in the weakness of the USD. This factor will make the gold rise. Vice versa, the hawkish comments will pull the price for the gold lower. As the economic calendar lacks the significant data for the USD for the next week, it is important for the gold traders to follow the news more attentively.
Technical levels for the gold
On the daily chart, the price for the metal has been trading sideways between $1,276 and $1,295. If the bearish pressure increases, the price will retest the support at $1,276. The next support lies at $1,264. Otherwise, if the risk-off sentiment goes up and the USD is weak, the price for the yellow metal will rise to the resistance at $1,295. The next resistance is placed at $1,306. If we look at RSI, it left the overbought zone at the beginning of January, which means the price for gold may continue to fall.
Conclusion
With all the uncertainties circulating and creating risk aversion, it is highly important to follow the news on the trade truce, as well as the direction of the USD. Any changes in these factors may affect the price for gold. And FBS will keep you updated.
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Hello again my friends, it’s time for another episode of “What to Trade,” this time, for the month of April. As usual, I present to you some of my most anticipated trade ideas for the month of April, according to my technical analysis style. I therefore encourage you to do your due diligence, as always, and manage your risks appropriately.
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