Commencing on Monday, Gold opened at $1321.13 and traded in a rather sideways movement for the first 2 days of the week. On Tuesday, a minor turbulence in the market was created due to talks on the NAFTA agreement and with President Trump stating that he does not intend to back down on the proposed tariffs.
Donald Trump was presumed to sign documents regarding the announcement of the tariffs on Thursday, however, did not as it was stated that the documents had to be legally reviewed and confirmed through a legal procedure.
The US president is expected to sign these documents by the end of the week possibly leaving out of the agreement neighbor countries Mexico and Canada for a 30-day exemption. This exemption is linked to the NAFTA negotiations which have not yet settled in a deal, leaving the market guessing as to where the relationships of the US with Canada and Mexico are heading to, an agreement or a falling out. Trump has threated to withdraw from NAFTA in case Mexico does not agree the US terms. With that said, it is more than evident that regarding the NAFTA agreement, the US has the upper hand and the final say.
Trump’s proposal of the much-discussed tariffs has come under major criticism and disagreement from the general market and especially from business officials. Fears exist that the impact on the US economy could be negative. Despite the possibility of a trade war based on tariffs growing out of proportion, there could be a notion in the White House that the US may be less affected or even favored by such a scenario.
As a result to that China, as well as European officials, were forced to react to these comments backfiring with promised retaliation if these tariffs are set to be effective.
Be advised, that the US tariffs may at the beginning affect steel and aluminum prices, later retaliations from the EU as well as China could affect a number of other industries as well. Hence, there is a possibility that a trade war will not only affect a number of economies, but also a wide range of industries.
On Tuesday, markets were nervous by the unexpected resignation of the chief economic adviser, Gary Cohn, who opposed Trump’s political views on particular matters. Cohn was a key player in Trump’s economic team and was a major architect of the tax cut plans applied recently. This incident made Gold prices rally as the US dollar was hurt by this event.
On other news, in Great Britain, all the major banks that have been operating within the UK’s gold market are in works of changing their regulations with respect to their clearinghouse. After taking criticism of price manipulation from other banks and traders, the world’s largest bullion trading center is now trying to improve the situation by giving the opportunity to new members to join the market. They believe that with these changes they can make the precious metal market more transparent towards the public and regain their good reputation.
In addition, it is widely believed that Gold is considered the antidote towards all the issues creating uncertainty in the market and specifically concerning the trade tariffs, the NAFTA deal, and North Korea. Traders are expected to use the Bullion as a hedge towards any losses or external volatility created by the aforementioned situations. Gold with its inverse relationship to the dollar is the perfect Instrument to hold as it tends to respond to an aggressive market movement involving the US.
Keeping in mind, the upcoming US Employment report is to be released on Friday the 9th of March and also the fact that the event is the biggest market mover in the FX industry on a monthly basis, strong volatility is expected to be picked up by the Bullion.
On Tuesday Gold broke $1324 support level, now turned to resistance. It is currently heading towards the $1315 Support hurdle which has been tested over 5 times in 2018. If this support level is breached, gold could be aiming for $1300 psychological barrier.
However, it is our opinion that Gold could possibly continue to move in a sideways manner above $1300, as this has been the trend in the past 2 months.
For our opinion to change, we would require the precious metal to have a clear break below the 1300 support line.
XAU/USD Daily chart below
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