- Gold faces pressure from US-China trade truce and stronger USD, but long-term bullish case intact.
- While trade deal boosts risk assets, gold’s near-term outlook remains bearish, with key levels to watch.
- Gold’s support at $3200 crucial; a breakdown below $3200 could shift short-term sentiment further down.
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The US-China trade truce has boosted risk assets like stocks, as well as the US dollar, while pressuring safe havens such as gold, which was down over 3% this morning. Despite the near-term bearish outlook, gold’s longer-term bullish case remains intact, especially once the initial market reaction fades and focus shifts back to global growth prospects.
Can Gold Bounce Back?
While stock markets and the dollar are loving the US-China trade agreement to slash their tariffs for 90 days, the news has been quite negative for safe-haven assets like gold and the Japanese yen. The yellow precious metal was down more than 3% at the time of writing and trading near the session lows. Not only does the news imply reduced haven demand, but the fact that the dollar has also rallied has further pressurised the buck-denominated metal.
But let’s not write gold off completely yet.
While I have been calling for a drop in prices in recent weeks, it is important to remember that gold was rising well before the trade war started. Yes, the easing of the US-China trade tensions is positive for risk, and gold’s long-term bullish case is still solid. All of this positivity is naturally supportive news for the US Dollar in the short term—particularly given how crowded the short-USD trade had become.
However, once markets finish adjusting interest rate expectations, attention is likely to shift back to global growth prospects, and renewed optimism could start to pressure the greenback once more, in favour of risk-sensitive currencies. Then, we could see gold also make a comeback. That said, the near-term direction has tilted to the downside, and some further weakness may be on the cards before the metal potentially starts trending higher again.
US-China Agreement Weighs Heavily on Gold
After prolonged negotiations, the US and China have finally reached a significant deal that has energized global markets. Both countries agreed to drastically cut tariffs for the next 90 days—US tariffs on Chinese imports will drop from 145% to 30%, while China’s tariffs on US goods will fall from 125% to 10%. These reductions are effective immediately and mark a substantial de-escalation in trade tensions.
Markets responded enthusiastically. US index futures surged between 2.7% and 4.2%, and global stocks rallied. In contrast, safe-haven assets like gold fell out of favour, with prices down 3.2% by mid-morning in London trading.
This 90-day period serves as a window for further negotiations, with the hope of reaching a more permanent agreement. While the timeline is flexible, any deterioration in talks could reintroduce market uncertainty. For now, however, the mood is optimistic, and traders are enjoying a wave of relief.
Despite the breakthrough, the US still maintains its highest effective tariff rate since the 1940s. Nonetheless, this deal is a welcome development for markets that have long been craving positive news on the US-China front. Whether the calm holds remains to be seen, but for the moment, risk appetite is strong.
US CPI, Consumer Sentiment Among the Week’s Data Highlights
The easing of trade war uncertainty has allowed the dollar to finally find some love. One big concern about tariffs was how much it would boost inflation, and this was among the reasons for Trump shifting to a more market-appeasing mode. Let’s see if Tuesday’s release of CPI has already accelerated after China’s exports to the US slumped over 20% in April.
Economists’ expectations point to an unchanged year-over-year rate of 2.4% in headline CPI. But will this month’s data release matter much with the sharp reduction in tariffs likely to ease inflationary pressures in the months ahead, especially if they are slashed even more?
Later on in the week, the UoM Consumer Sentiment survey should also move the markets on Friday. The trade war uncertainty has weighed heavily on survey-based measures of consumer confidence while lifting inflation expectations sharply. The US and China have announced the first steps towards a deal, after engaging in trade talks over the weekend.
The markets have rallied as if a trade deal has already happened. Will the rallying stock market boost consumer sentiment, or do they need to see the complete end of the trade war first?
Gold Technical Analysis
Despite the big drop, gold’s longer-term bullish traders argue that unless the metal begins printing a series of lower highs and lower lows, the market still has the potential to bounce back and head higher. That said, the bears also make a strong case. Long-term charts have been showing historically overbought momentum signals, and with the recent breakdown of key levels, the path of least resistance seems to be tilting to the downside, albeit in the short-term outlook.
Looking at the daily time frame, gold is currently residing near support around $3200, after struggling to break through the $3,400 resistance zone last week, which is now a major ceiling. The emergence of a couple of lower highs adds some short-term bearish pressure, although the overall trend is still technically bullish.
For the forecast to flip convincingly bearish, we’d first need to see a clear breakdown below $3,200—its most recent significant low. Then, there is the short-term trend line coming into focus around the $3,150-$3,167 area. Below that, plenty of other potential support levels come into play, with $3,000 being the most important support now. So, the bears a have a lot of work to do to materially change gold’s longer-term bullish structure.
In as far as resistance levels are concerned, $3269-$3275 is now the first key hurdle, having previously served as both resistance and support in the last few weeks. Above that, the next resistance level sits at $3,360. A clean break above it opens the path to retesting $3,400, and potentially even the record high near $3,500.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.