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Gold Price Outlook: Strength to Persist if US-China Trade Talks Fail

Gold Price Outlook: Strength to Persist if US-China Trade Talks Fail

2019-05-08 09:15:00
Martin Essex, MSTA, Analyst and Editor
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Gold price, news and analysis:

  • The gold price has been strengthening this week on concerns about the US-China trade talks that resume in Washington tomorrow.
  • Other safe havens like US Treasuries and the Japanese Yen have benefited too but it is not clear that a potential “no deal” has yet been priced in.

Gold price rally may extend higher

The prices of gold and other safe-haven assets like US Treasuries and the Japanese Yen are benefiting as traders switch out of riskier assets such as stocks amid pessimism about the US-China trade talks due to take place in Washington on Thursday and Friday.

However, it is likely that the markets have yet to price in fully the real prospect that the talks break down without an agreement – and that could mean further gains for gold and other havens.

Gold Price Chart, Hourly Timeframe (May 3-8, 2019)

Latest gold price chart.

Chart by IG (You can click on it for a larger image)

Click here for our second-quarter forecasts for gold and other assets

Chinese Vice Premier Liu He will travel to Washington in an attempt to reach a trade agreement before higher tariffs on a range of Chinese goods are imposed by the US Friday – the new deadline set by President Donald Trump. However, Liu’s visit has been shortened to two days from three and risk aversion could yet increase further unless there are signs of progress in the talks.

Chinese trade surplus narrows

The talks will resume in the wake of data showing that China’s trade surplus fell to $13.84 billion in April – smaller than both the previous $32.67 billion and the predicted $34.56 billion. That arguably weakens the case for US tariffs on Chinese imports but there is still plenty of scope for a trade deal to unravel.

The DailyFX economic calendar is here

If it does, the gold price can be expected to hit the $1,300 per ounce level near-term and that advance could extend quickly to the $1,310.69 high touched on April 10 and potentially the $1,324.58 high reached on March 25. Meanwhile, to the downside, there is support at the $1,266.33 low recorded on May 2.

Note though, that there is currently no clear signal from IG Client Sentiment data. The latest figures show 74.1% of retail traders are net-long, with the ratio of traders long to short at 2.86 to 1. The number of traders net-long is 1.2% higher than yesterday and 5.7% higher from last week, while the number of traders net-short is 2.3% higher than yesterday and 1.8% higher from last week.

At DailyFX, we typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests gold prices may fall. Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed gold trading bias.

Latest gold trader positioning chart.

Source: DailyFX

More to read:

A brief history of trade wars

How to trade gold

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--- Written by Martin Essex, Analyst and Editor

Feel free to contact me via the comments section below, via email at martin.essex@ig.com or on Twitter @MartinSEssex

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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