Gold may have dropped today, after Trump said China wants to resume trade talks. Since technicals are signaling that the yellow metal is headed higher, we believe this as a rare buying opportunity, irrespective of what the Fed decides or what happens with trade.
Let’s dispense with the obvious first: another presidential tweet could turn the current market on its head. Equities could once again be sold off and safe haven assets boosted.
Still, even if this time is actually different and trade issues are actually, finally worked out, gold will likely strengthen against a falling dollar in any case. And, as of now, 10-year yields are hovering around 1.5% or below, at the low of the day, their lowest point since July 2016, demonstrating that institutions are not buying into this sudden and miraculous trade turnaround.
And of course, the macro environment continues to fluctuate. Today, China strengthened the yuan more than expected, a good faith gesture to President Donald Trump, who gets irritated when the yuan weakens. The Fed remains divided and but unclear about its next move.
No wonder the economy and markets are so volatile. Presumably, trade progress will boost markets and sentiment, but unless Trump overtly flip flops and suddenly stops sending out mixed signals, it may just be too late to avoid a bear market before the 2020 presidential elections.
We found it particularly interesting that despite China having made the call to Trump about returning to negotiations, and a market narrative suggesting that over the weekend the U.S. president flip-flopped on his trade stance, blurting out something revealing he regreted his hardline on trade, gold found staunch support above the August highs.
The demand at this level intertwines with the flipped market dynamics amid the failed small H&S top, with a short squeeze, triggering longs and speculators joining the ride up within the ascending channel.
Finally, the price registered a new high, extending the uptrend, reaching the highest point since April 2013.
Trade Strategies – Long Position Setup
Conservative traders would wait for a meaningful downward correction toward $1,350 in a return move to a massive 6-year bottom. The 13% advance since that point and 20% jump in four straight months is just too risky for this class of traders.
Moderate traders might wait to see whether Trump will soften his trade posture with China and whether prices remain above $1,500 this week.
Aggressive traders may go long immediately, counting on the support of the August highs.
Trade Sample