Even when hell is breaking loose in the financial world, traders and analysts will always take a look at what is happening with Gold to better understand to what extent the news are serious or not.
Of course the higher the reaction on Gold the higher the significance of the event yet not to be mistaken, trading by itself can also create major shifts for the yellow metal’s price action.
From our point of view, Gold is more fundamentally driven rather than technically and this makes it hard to comprehend it as an instrument, due to the fact that traders must be able to bring forth a strong understanding of how the news are digested by the market.
Risk off sentiment with US economic positivity
We must note that Gold traders are currently in a very challenging situation as per how to trade the precious metal.
Day traders along with medium to long term trader, face the same dilemmas.
It’s hard because the US dollar is amazingly strong but the difficult part to get correct are the fundamentals driving the greenback and the unpredictability of the issue.
The Fed minutes on Wednesday gave the impression of leaning towards a reduced risk environment which could provide further support to the USD.
Analysts expect higher volatility due to a stronger USD but at the same time, the chances of the greenback making a correction lower, are growing.
According to the minutes, the Fed implied that they expect Inflation levels to make a comeback and move higher.
How does the precious metal react to the news? Risk off from our view is translated as Gold prices moving lower as the US economic positivity is feeding the US dollar which tends to send Gold down.
This scenario is viewed by many as a firm story to trade upon and that could make its way into June and the later months also, as the FED could wait for more data if they are considering to change things.
China planning to retaliate on US tariffs
However, the most uncertain subject out there currently is none other than the US Sino bitter trade dispute that could explode at any time giving no notice to traders as per its effects.
The matter spreads worries and fear, not because of the battle the two economies are having, but because they aim to catch each other off guard and deliver devastating blows.
Then again, the way to have the maximum economic effect on each other, could be for both to engage in an indirect war of strategically placed announcements that would deteriorate further their relationships.
Gold is immensely sensitive to unexpected announcements that could affect or disrupt world trade flows, especially upon the release of the news.
So, Gold traders must be aware that when entering the market on any direction regarding the yellow metal, the trade has a percentage possible reaction to unexpected announcements from either side.
Many market followers are speculating that China is preparing a plan to retaliate on US tariffs and could be aiming at private US company products.
China decreasing physical gold imports
We now move to physical Gold purchases that one can use to make decision upon to trade and also can complete the picture for a solid strategy to go with.
Most significant was the fact that China is decreasing its physical gold imports compared to last year which creates many questions.
Why is China lowering its Gold reserves in the midst of a trade war, when the precious metal is traditionally used as a measure to hedge risk and generate economic value?
Yet sources indicated this could be due to the massive Gold purchases that took place in 2018 and could have most probably gone straight to their bank vaults in order to sustain their economic environment healthy.
As a conclusion, analysts believe that small amounts of physical gold could be now exchanged for the stronger USD which could be used as a strategy from the Chinese to gain advantage from.
Gold Market Technical Outlook
Gold gained strength yesterday and was able to break above our 1280.00 resistance level and aimed for the (R1) 1287.00 resistance level which did not manage to breach.
However if the precious metal is to trade even higher we may see it surpass the (R1) 1287.00 resistance barrier and aim even higher for the (R2) 1294.00 resistance hurdle.
Above that we may see the (R3) 1300.00 resistance barrier being next.
Yet, in the opposite direction we could see the precious metal drop below the (S1) 1280.00 support level and aim even lower for the (S2) 1271.50 support line with the (S3) 1260.00 support level being next.