Is gold having a reversed USD direction once again?

In a time when uncertainty heightens due to the worsening US-Sino trade relationships and the instability of the Turkish political scene and economy, in a time when stock-markets drop one would expect the bullion to emerge as a safe haven, have increased demand as well as prices that rally. However that was not the case in the past few days. On the contrary, the price of the precious metal dropped by almost a 100 USD and set an 18 month record low price of 1160 USD.

So has the precious metal lost its shine, is it no longer to be considered as a safe haven? Analysts, saw a positive correlation between the S&P 500 and gold for the past few days. We would also share the opinion that there seems to be a negative correlation between the USD and gold at works in the past few days. If the USD strengthened due to the tensions of the US-Sino trade relationships, as well as the worsening Turkish-US relations, then one could interpret it as a sign that the market may be seeing the case for the US economy to be in an elevated position against its rivals and being able to overcome victoriously both fronts. It would be evident that as on Wednesday, the USD had reached one of its peaks, gold reached one of its lows, while on Thursday as the USD seemed to stabilize or even weaken somewhat during the Asian session, the bullion’s prices seemed to recover, as if it was confirming the negative correlation between the USD and gold once again.

Other analysts, also raised the idea that gold may have been for sale by central banks for emerging countries. An idea which could make some sense if they would try to monetize dollar reserves in order to support their currencies, as in the current situation. Also, analysts point out that gold’s nature may have changed over the years and may no longer be so sensitive to geopolitical changes, but feeds more on news regarding the actions of central banks, especially the Fed’s. In both cases, the arguments for the negative USD-Gold correlation could remain intact if not strengthen. Apart from theorizing, it should be noted that daily average trading volumes for gold in Turkey doubled recently and probably in face of the country’s ongoing crisis, we could expect an increase in demand for the precious metal, at least locally. Also uncertainty could be rising in gold mining as South African Unions have rejected the latest pay increases offered from four producers as negotiations were drawing to an end. Talks could resume next week however the outcome remains uncertain. Sticking to South Africa and gold mining, bear in mind that Gold Fields Ltd has to come up with another plan to save its massive South Deep mine and further negative headlines could influence gold’s prices. On another positive note for gold, on Wednesday Australia’s Perth Mint is about to launch a new gold backed ETF on the NYSE, practically testing the investor’s appetite for the bullion.

Gold tumbled in the past week, reaching the 18 month low of 1160 USD support line, however rebounced and tested the 1180 resistance line today. The precious metal’s price action remained below the downward trend line, incepted since the 10th of August and tested it with little success, three times, with its latest try being today. Hence, technically we retain a bearish bias currently, for gold’s prices and in order to lift in favor of a sideways movement or even a bullish market, we would first require the bullion’s prices to break the prementioned downward trend-line. We would also like to point out, that the RSI indicator in the 4 hour chart remains near the reading of 30, implying a relatively overcrowded short position. Should the bears continue to drive the market, we could see the pair breaking once again the 1170 support line aiming for the 1160 support barrier. On the other hand should the precious metal’s price direction be dictated by the bulls, we could see the pair breaking the 1180 resistance line opening the way for the 1192 resistance hurdle maybe even taking an aim of the 1208 resistance area.

US considers higher tariffs for Chinese products

The US administration seems to be considering to increase planned tariffs from 10% to 25%, for $200 B worth of Chinese imports. The move adds further pressure to China as it would face increased tariffs on about half of its exports in the US. While China has not responded initially, reports state that representatives of the US and China have been speaking privately to restart negotiations. Analysts currently, consider the move as another negotiating tactic on behalf of the US. Should there be further escalation of the US-Sino trade dispute we could see the USD strengthening in the short term while commodity currencies may be hit.

USD/JPY rose yesterday breaking the 111.30 resistance line aiming for the 112.05 resistance line. In regards to yesterday’s analysis the pair has broken the 111.30 resistance line and we lift our sideways bias in favor of a more bullish outlook. Hence, we could see the pair trading in a more bullish market today if the FOMC meeting favors the USD side. Please note that the RSI indicator has almost reached the reading of 70, implying a bullish momentum however with room for further advancements available. Should the pair find fresh buying orders along its path, we could see it breaking the 112.05 resistance line while aiming if not breaking the 112.50 resistance barrier. Should it come under selling interest we could see the pair dropping and breaking the 111.30 support line.