Gold Turns Bearish as US-Japan Trade Deal Dents Safe-Haven Flows

Gold futures are on the same track as I explained in my last article, which defined the resistance and support levels for the short term as the yellow metal seems to be under pressure due to the US tariff deadline.

On Wednesday, Trump announced a trade deal with Japan, which will see the country subject to a 15% tariff, a lower rate than the 25% levy initially threatened by Trump, raising optimism for more such agreements ahead of an impending tariff deadline.

Undoubtedly, this major development looks evident enough to strengthen US dollar which is struggling at the lower levels but looks ready to regain its strength as the dollar has been one of the biggest losers since Trump announced sweeping tariffs on trading partners on April 2, only to delay and suspend most of the duties as his administration sought bilateral trade deals.

I anticipate that despite some dovish stance which is infecting the market at the moment around the US Dollar and the bond markets, the dollar is likely to regain its strength as the dollar index, which tracks the greenback against major peers, rose to 97.225 after a three-day decline, hovering near its lowest level since July 10.

Gold futures have formed a bearish doji in today’s session after a three-day surge, which faced stiff resistance yesterday, and after testing this resistance today, look ready to decline further.

Undoubtedly, today’s session could be decisive for gold, as if the gold futures find a breakdown below the immediate supports at $3421 and $3388 and sustain below them, will likely define the quantum of bearish pressure.

In contrast, any upward attempt by the gold futures to sustain above the immediate resistance at $3457 will attract big bears to come on top as the dollar is likely to regain its strength in today’s session amid growing hopes over some more tariff trade deals this week.

Secondly, Trump’s announcement highlights some progress in Washington towards reaching trade deals before the August 1 deadline, but Trump’s tariffs have remained a key point of uncertainty, especially warnings from the Federal Reserve that they could underpin inflation in the coming months.

I anticipate that the gold futures will likely remain volatile till August 1, as markets will remain focused on the deals with the European Union, which was preparing retaliatory tariffs against the U.S. since Washington pushed for a higher tariff level than EU leaders were demanding.

Undoubtedly, progress made in U.S. trade policy after this US-Japan trade deal still does not indicate any softening stance of the US with its other trading partners, but I anticipate that this deal looks evident enough to provide positive vibes both for the U.S. and its trading partners.

I anticipate that the gold futures could remain choppy till this tariff trade deadline ends on August 1 while any extension on this front would trigger more bearish pressure over the gold prices as the gold has already lost its haven potential but still surging uncertainty over the rising inflation and other macro factors could surge haven’s demand till some more visible clues to support economic growth once the global trade worries turn normal.

Disclaimer: Readers are advised to take any position in gold, USD Index futures, and USD/Yen as this analysis is based only on observations.