•Gold prices dipped on Monday as Sino-U.S. trade tensions and uncertainty over a deal weighed on yuan, making the bullion expensive for buyers in world’s largest consumer — China.
Spot gold was down 0.2% at $1,283.46 per ounce, as of 0351 GMT.
U.S. gold futures slipped 0.2% to $1,284.40 an ounce.
•“Gold price in yuan has risen fairly sharply since early May and Shanghai premiums are softening. That is probably taking the edge off demand and maybe inducing some people to offer (sell) gold,” said Nicholas Frappell, global general manager, ABC Bullion.
The trade war between the world’s two leading economies escalated on Friday, with the United States hiking tariffs on $200 billion worth of Chinese goods after Trump said Beijing “broke the deal” by reneging on earlier commitments.
China has vowed to retaliate, without giving details.
•The United States and China appeared at a deadlock over trade negotiations on Sunday as Washington demanded promises of concrete changes to Chinese law and Beijing said it would not swallow any “bitter fruit” that harmed its interests.
The offshore Chinese yuan dropped to its lowest levels in more than four months at 6.896 to the dollar. It last stood down 0.7% at 6.888 per dollar. A weaker yuan makes gold expensive for buyers in China.
•“Markets are still living in some form of half-glass full optimism, but that is likely to erode with time as the reality of a full-blown trade war sinks in,” said Howie Lee, economist, OCBC Bank.
“I expect demand for gold to gain traction in the coming weeks,” Lee added.
While gold has managed to find support due to a risk-aversion mood among investors, prices have been stuck in a $15 dollar range over the past week despite the slump in global markets.
•Gold was also facing a barrier around $1,290 levels, restricting buying from traders who follow technical charts, analysts said.
“Gold’s performance has been rather disappointing to both bulls and bears alike,” INTL FCStone analyst Edward Meir said in a note.
•While holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.9 percent on Friday, speculators raised their net-long position in gold in the week ended May 7.
“Although there was not much propulsion this past week, we think the momentum (in gold) could build, especially if equity weakness remains deep and protracted,” Meir said.
•There is an old market adage that says a period of sideways consolidation is the sign of a market not sure which way to head next.
•Gold has drawn some support from recent weakness in equities amid escalating trade tensions between the U.S. and China. However, some traders say any safe-haven gold buying has been modest considering the scope of some of the downdrafts in stocks.
“Gold is looking a bit better technically [after] having moved up a bit, but truth be told, considering the risk and volatility, gold really hasn’t moved very far and inflation remains subdued,” said Colin Cieszynski, chief market strategist at SIA Wealth Management, one of the many neutral votes. “It seems that the most I can say for gold is that increased U.S.-China trade tensions have stopped gold’s decline for now, but it’s still difficult to see what would enable gold to really move ahead in the near term.”
In the last survey, Main Street and Wall Street were both split between bearish and bullish. Around 11:30 a.m. EDT, Comex June gold futures were trading up 0.6% for the week so far at $1,288.40 an ounce.
•David Madden, market analyst at CMC Markets, is among those who are neutral on gold in the near term. He commented that in the event of a trade war, the U.S. remains a beacon of strength in the global economy, and that will cap gold’s potential.
“Even if the Fed does turn dovish, it would only be a matter of time before other central banks turn even more dovish and that continues to support the U.S. dollar,” he said. “When gold can’t surge higher when equities drop 400 points, that kind of tells you that the market doesn’t want to go higher.”
•Bill Baruch, president of Blue Line Futures, looks for gold to spin its wheels, commenting that seasonal factors are not supportive right now, and the metal may have to get through the summer before prices start moving higher. He added that stock-market weakness hasn’t supported gold prices because the correction hasn’t been sharp enough.
“The S&P 500 is only 3% down from its all-time highs,” Baruch said. “There still isn’t a lot of fear out there.”
•Kevin Grady, president of Phoenix Futures and Options, also said he remains neutral at current levels.
“We continue to hold the 200-day moving average, which comes in today at $1,268.20,” Grady said. “Gold is struggling to rally even with an increase in inflammatory geopolitical news (North Korea, tariffs, Venezuela, U.S. political situation). A settlement above $1,305 will force shorts to cover and should bring in fresh longs.”
•Jim Wyckoff, senior technical analyst with Kitco, said he looks for gold to be steady, commenting that a “price downtrend still in place on the daily chart, but bulls have stabilized prices this week.”
The bullish camp had just as many Wall Street voters as the neutral.
“I think market will be swinging back and forth but I am leaning to higher next week,” said Peter Hug, global trading director with Kitco.
•Measures of volatility across global asset classes are rising thanks to surprising developments along the US-China trade war front and the sudden implications for global growth. Equities, bonds, commodities, and currencies have seen volatility increase dramatically this week. Amid this increased volatility, precious metals investors may soon be forced to decide on whether gold prices will retain or lose their uptrend from the August 2018 lows.
Gold prices have been trading sideways for the past few weeks, but the slumber may soon be coming to an end. The price of June Gold futures remains in a tight range between $1270 and $1290, as markets are awaiting the outcome of the two-day negotiations between China and the United States later today.
The Gold/Silver ratio continues to climb near its all-time high above 90, which happened briefly during the heat of the financial crises of 2008. Since the 1970s, the average level for the relationship between silver and gold has been at the 55:1 level. Historically, once this closely watched statistic has fallen below 80, another up-leg begins in the gold complex. This occurred briefly in 2016, fueling a six-month 180% gain in the mining complex. Although technical metrics are telling us that a rally in the silver futures market is overdue, the price action and trend remains bearish.
Meanwhile, the GDX has been struggling to close back above its 200-day moving average, selling off after back-testing its 200-week moving average and possibly forming another daily bear flag. With the latter being a more closely followed line of support during the consolidation of the aforementioned 180% move beginning in mid-2016, we are already beginning to see capitulation selling coming into many of the juniors.
With the backbone of the entire rally in the gold complex over the past nine-months coming into question recently, both the GDX and the lagging silver price continue to suggest the next big move may be to the downside. To this end, the near-term gold price forecast remains neutral for the time being and caution is still advised. It is typically best to take a contrarian view to crowd sentiment and the fact gold futures traders are now back to being net-long suggests spot gold prices may continue to fall towards the next support level at $1240-$1250.
•Silver was down 0.3% at $14.70 per ounce, while platinum fell 1% to $852.50.
Palladium dropped 1.6% to $1,335.21.
Reference : Reuters, Daily FX, Kitco
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