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Fundamental Forecast for Gold: Bearish

Gold Talking Points:

  • Gold vulnerable to trade wars as the dollar climbs in value
  • A rather quiet economic calendar 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, 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

Gold Price Hinges on US-China Trade War Developments

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. First off, the economic calendar for the week is very quiet so action due to data releases will be minimal.

A NAFTA breakthrough could generate a move higher as well as a breakthrough in the US-China trade war discussions. Unfortunately, these are fairly unlikely. Any breakthrough in the US-China talks to delay or escape the tariffs would simply see the move on Friday reversed. Barring a truly landmark agreement, trade wars will continue to harm gold.

Gold Price Daily Time Frame, Year-to-Date

Gold Price Hinges on US-China Trade War Developments

Looking briefly to technicals, gold is approaching the trend line dating back to April when gold began a rather precipitous descent. Should gold trade higher next week, expect firm resistance at this line and a potential decline to support dating back to 2015.

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Gold Price Hinges on US-China Trade War Developments

Trader positioning for gold is overwhelming bullish with 82.4% of clients net-long on the precious metal. Usually we take a contrarian stance to this indicator which would suggest gold is likely to continue lower in the coming week.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact Peter on Twitter at @PeterHanksFX

DailyFX forecasts on a variety of currencies such as the US Dollar or the Yen are available from the DailyFX Trading Guides page. If you’re looking to improve your trading approach, check out Traits of Successful Traders. And if you’re looking for an introduction to the Forex market, check out our New to FX Guide.

Other Weekly Fundamental Forecasts:

New Zealand Dollar Forecast - NZD Rise to Gain if GDP Sinks RBNZ Rate Cut Bets, Trade War a Risk

Oil Forecast – Brent Up 10% Since August Low, Stubborn Supply Concerns Persist

British Pound Forecast – Sterling Continues to Benefit From a Lack of Bad News