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Gold Drops As Geopolitical Tensions Subside, For Now

Published 11/09/2017, 12:09
Updated 18/05/2020, 13:00

Risk-sensitive assets created large gaps at the start of this week’s trading session in Asia overnight. Index futures gapped up before pushing higher which saw the Dow future gain more than 100 points. In contrast, safe haven gold, which had hit a new 2017 high on Friday, found itself around $15 lower when trading got underway.

It looks like speculators who had established positions to take advantage of a possible rise in risk aversion, were left disappointed as North Korea did not conduct another missile test at the weekend. What’s more, a weakening of Hurricane Irma over the US also dampened demand for perceived safe haven assets, and boosted the dollar slightly. However, North Korea tensions could rise again. The United Nations will be voting on new sanctions – proposed by the US – against Pyongyang today. If approved by the UN Security Council, then North Korea stands "ready and willing" to respond with measures of its own, the North's Foreign Ministry has said. So, North Korea tensions are likely to linger which should keep demand for gold and other safe haven assets elevated.

From a technical stand point, gold’s weakness also makes sense, but so far it can only be interpreted as a mere pullback from overbought levels, rather than trend reversal. After breaking above the $1300 level, the yellow metal went on to hit our next key target around the $1350 area, where the top of the bullish channel converged with the 161.8% Fibonacci extension level of the last corrective downswing. But given the prospects of a ‘gap fill’ and the overall bullish structure of price, we wouldn’t be surprised if the metal continues to push higher towards $1375 next – the 2016 high.

Short-term support comes in around $1325, followed by $1300. But if gold falls below $1290 then the bulls may be in trouble. Until and unless that happens, or price forms a distinct reversal pattern at higher levels, the path of least resistance for gold remains to the upside despite its immediate-term weakness.

Gold Daily Chart

Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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