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  • Gold has been unable to keep up the bid, losing strength to the dollar and US yields as investors look elsewhere for a return on investment.
  • The risk mood has improved as US Treasuries, and the Japanese yen take a hit while US stocks stabilise and consolidate the recent series of daily losses.  
  • Technical support has failed at S1 1225 and price trades below the 21/1- 4hr SMA bearish crossover.  

Gold had been showing all of the signs of intentions for a break towards 1250 on multiple tests in the 1240’s during the initial phases of the global stock market rout having rallied from as low as the 1180s. However, in recent sessions, the dollar has firmed, and while stocks are far from out of the woods, there is a sense that investors are not panicking too much after all.  

The growth outlook had been tapered back among observers considering the trade war implications and the slump in China’s economic expansion. Chinese stock markets had been bleeding heavily for some time, and there have been concerns of contagion spilling over into European and US markets. Due to the void in trade headlines of late and ongoing poor performances in the Chinese markets, investors had presumed the worst and that the US stock market bubble had burst.

Eyes on Trump / Xi and stock markets

However, the most recent comments that President Donald Trump made during a late-Monday interview yesterday have implied that the US president is ready to make a deal to ease trade tensions with China which have lifted spirits and given markets some backbone on Tuesday –   (The Dow Jones Industrial Average DJIA, +0.75% the S&P 500 index  +0.75% and  The Nasdaq Composite Index +0.92% at the time of writing. USD/JPY is +0.37%, USD/CHF +0.26% and DXY was a few pips shy of the 97 handle and the YTD high 96.98 at 96.95).  

While gold has broken a key support line,   this apparent sigh of relief in markets may only be very shallow. Trump’s rhetoric wasn’t entirely positive and the caveat is that should Xi & Co in Bejing not wish to play ball with Washington, the White House would be prepared to announce tariffs on all remaining Chinese imports.

If recent history is anything to go by, it is too early to call a positive day for stocks. After all, there have only been six trading days where stocks have finished the day higher than they open this month – Today’s positive open will be the 11th time in 22 trading days – So, two closes for the month left to go – Another day of blood red on Wall Street could see the gold bounce yet.

Gold levels

Should demand come in again, bulls need to clear the 10 and 21 4hr SMAs to steer clear of immediate downside pressures. R1 is located at 1235, and then bulls can target the 1248 level that comes with the confluence of the 7th Aug lows 2018 and Oct 2016 reversal lows. To the downside, bears can target 1213 ahead of 1198 taking the price to a few dollars short of the 50% retracement Fibo of 15th Aug lows to 15th Oct highs.