Gold Prices Hold Narrow Range as US, China Tariffs Take Effect

Gold Price Talking Points

The price of gold appears to be stuck in a narrow range even though the next round of US and China tariffs take effect, but current market conditions are likely to keep the precious metal afloat as market participants search for an alternative to fiat currencies.

Gold Prices Hold Narrow Range as US, China Tariffs Take Effect

The shift in US trade policy may continue to influence financial markets as it puts pressure on the Federal Reserve to implement a rate easing cycle, and the central bank may continue to later the forward guidance for monetary policy as President Donald Trump tweets “if the Fed would cut, we would have one of the biggest stock market increases in a long time.”

It remains to be seen if the Federal Open Market Committee (FOMC) will reverse the four rate hikes from 2018 as Fed Fund futures reflect overwhelming expectations for a 25bp reduction on September 18, but the central bank may find it increasingly difficult to justify back-to-back rate cuts as the economy shows little signs of a looming recession.

In turn, the US-China trade war may spur a greater dissent within the FOMC, and a growing number of Fed officials may resist calls to implement a rate easing cycle as Chairman Jerome Powell argues that monetary policy “cannot provide a settled rulebook for international trade.”

With that said,the risk of a policy error may push market participants to hedge against fiat currencies, and falling US Treasury yields along with the inverting yield curve are likely to keep gold prices afloat as there appears to be a flight to safety.

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Gold Price Daily Chart

Source: Trading View

• Keep in mind, the broader outlook for gold prices remain constructive as both price and the Relative Strength Index (RSI) clear the bearish trends from earlier this year.
• Moreover, gold has broken out of a near-term holding pattern following the failed attempt to close below the $1402 (78.6% expansion) region, with the RSI still tracking the bullish formation from April.
• However, the failed attempts to close above $1554 (100% expansion) may generate a short-term pullback in the price of gold as the RSI struggles to push back into overbought territory
• In turn, a break/close below the Fibonacci overlap around $1509 (61.8% retracement) to $1517 (78.6% expansion) raising the risk for a move towards $1488 (61.8% expansion), with the next area of interest coming in around $1467 (50% expansion).

For more in-depth analysis, check out the 3Q 2019 Forecast for Gold

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--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong.