Gold Outlook: US-China Trade Truce Pressures Safe-Havens, But Long-Term Bullish Case Intact
The recent US-China trade truce has sent shockwaves through the financial markets, with risk assets like stocks surging while safe-havens like gold facing pressure. Gold was down over 3% this morning, as the stronger USD and reduced haven demand weighed on the precious metal. However, despite the short-term bearish outlook, the longer-term bullish case for gold remains solid.
Can Gold Bounce Back?
While the initial market reaction to the trade deal has been negative for gold, it’s important to remember that the yellow metal was on an upward trend even before the trade tensions started. The easing of US-China tensions is positive for risk assets, including the US Dollar, in the short term. However, once market focus shifts back to global growth prospects, renewed optimism could pressure the greenback and potentially boost gold prices again.
US-China Agreement Weighs Heavily on Gold
The US-China trade agreement to slash tariffs for 90 days has energized global markets, with US index futures surging and stocks rallying. In contrast, safe-havens like gold have fallen out of favor, with prices down 3.2%. The 90-day period serves as a window for further negotiations, but any deterioration in talks could reintroduce market uncertainty.
US CPI, Consumer Sentiment Among the Week’s Data Highlights
The easing of trade war uncertainty has allowed the dollar to find some support, with concerns about inflation easing. This week’s data releases, including US CPI and consumer sentiment, will provide further insight into the impact of the trade deal on the economy.
Gold Technical Analysis
Despite the recent drop in gold prices, the longer-term bullish case remains intact. The key support level to watch is $3200, with a breakdown below this level potentially shifting sentiment further down. Resistance levels to watch include $3269-$3275 and $3,360, with a break above opening the path to retesting $3,400 and potentially even the record high near $3,500.
Overall, while the near-term outlook for gold may be bearish, the longer-term bullish case remains intact. Investors should keep an eye on key support and resistance levels to navigate the current market volatility and potential opportunities in the precious metal.
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