Price of Gold Fundamental Weekly Forecast – Could Feel Pressure if U.S.-China Begin Trade Negotiations
Gold futures closed sharply lower last week, reversing most of the previous week’s gains. The catalysts behind the selling were a stronger U.S. Dollar and stable demand for higher risk assets. Gold initially rallied at the start of the week on concerns of a global trade war and a weaker U.S. Dollar.
June Comex Gold futures settled the week at $1327.30, down $28.40 or -2.09%.
The U.S. Dollar rose against a basket of currencies, rebounding from a five-week low hit early last week, as trade tensions receded and the Greenback found support from month-end flows as global asset and fund managers rebalanced their portfolios.
Gold was also pressured by the news that North Korea’s leader Kim Jong Un pledged his commitment to denuclearization and to meet U.S. officials, China said at mid-week after his meeting with President Xi Jinping, who promised China would uphold friendship with its isolated neighbor.
Forecast
Given last week’s price action, the direction of the gold market this week is likely to be determined by the same factors – the dollar and global trade war concerns.
At the end of the week, gold was sitting in a weak position as concerns of a global trade war were eased by optimistic news that the U.S. and China were set to begin trade negotiations, after exchanging threats earlier in the month.
Traders basically feel that any announcement that negotiations are being formalized and/or are being taken seriously by the U.S. and China would be considered bullish for the U.S. Dollar and bearish for gold prices.
Furthermore, this news would also provide a platform for higher stocks or increased demand for risky assets which would also be a negative for gold prices.
The direction of the gold market boils down to appetite for risk. Gold will be an in demand safe haven asset if investors shed risky assets. On the other hand, investors will dump gold if the dollar and stocks become more attractive investments.
This is what is at risk if the U.S.-China attempt to reach a compromise fails. The tariffs on Chinese goods will likely be imposed in June after the government allows for public consultations and potential tariff revisions.
In the meantime, China could begin targeting a broad range of U.S. businesses from agriculture to aircraft, autos, semiconductors and even services if the trade conflict with the United States escalates.
This article was originally posted on FX Empire