Trade War Fears Battle US Dollar Weakness

Gold 2-Hour Price Chart

Gold Price Forecast: Neutral

  • US dollar weakness should be pushing gold back above $1,500/oz. and higher.
  • US-China ‘phase one’ talks and Brexit negotiations weigh on risk-off assets.

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Gold in Limbo on Balanced Risk Sentiment

The outlook for gold next week is neutral with the precious metal expected to remain rangebound as markets swing gently from risk-on to risk-off. There are a number of conflicting forces are in-play currently with no single driver gaining the upper hand.

The US dollar has been weakening over the last 3 weeks, off its highest level since May 2017, as traders’ price in further interest rate cuts in 2019 with a 0.25% cut nearly fully priced in for this month. A weaker US dollar is normally a positive driver for gold, but this has not been the case for the last few weeks with the inverse-correlation between the two asset classes seemingly broken for now. A weaker USD makes gold cheaper to buy for investors.

US-China trade talks continue with US officials saying that both sides are working on ‘phase one’ of a trade deal text with President Trump and Chinese President Xi Jinping expected to meet next month to hopefully sign off on the deal. Any cessation of the 15-month old US-China trade war would be met by a boost to riskier assets, to the detriment of gold any other safe-haven asset classes.

The long-running Brexit saga may well be coming to a close this weekend with the UK parliament voting on whether to ratify a newly agreed deal between the UK and the EU. The vote is expected to be very close and if UK PM Johnson is successful in getting the bill passed, riskier assets will again get an uplift. If the deal is not agreed, it is likely that the UK will have to seek an extension to the October 31 Brexit date, adding risk back into the market.

The recent state of uncertainty in risk markets is showing in the price of gold with the precious metal stuck in a symmetrical triangle and nearing a breakout. While this formation normally precedes a break higher, the 20- and 50-day moving averages are acting as short-term resistance and cloud the outcome.

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Gold Price Chart (February – October 11, 2019)

Gold Price Chart

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What is your view on Gold – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author at nicholas.cawley@ig.comor via Twitter @nickcawley1.