Just ahead of his summit with China’s leader Xi Jinping, US President Donald Trump says he’s against suspending the upcoming round of higher tariffs against Beijing. The remark could hardly be friendly to stock markets trying to rebound from one of their worst routs ever.
But will gold bugs be thrilled? Will the default safe haven rally forcefully before the November 30 talks? The answer: yes and no.
Investors long on gold will certainly be tempted to add to their positions, but unless equities and the dollar—both contrarian bets to the yellow metal—get hammered in the coming days, bullion is likely to stay in its recent range of $1,212 to $1,235 per ounce, according to precious metals industry executive and commentator Walter Pehowich.
Stocks struggled in early Asian trading on Tuesday, after Trump, in an interview with the Wall Street Journal, appeared to quash hopes for a trade truce with China on the sidelines of the G20 meeting in Buenos Aires, Argentina on Friday.
Trump Vows More Tariffs Without Deal
Trump told the Journal it was “highly unlikely” he would accept Beijing’s request to hold off on Washington’s plans to boost tariffs on some $200 billion of Chinese goods to 25% from 10%. Chinese officials have said their priority was to convince Washington to suspend the January 1 tariffs increase.
Without a deal, the US president said he might also impose duties of either 10% or 25% on some $267 billion of currently untaxed Chinese imports. These could include electronic devices made by US companies in China, such as Apple’s (NASDAQ:AAPL) iPhone.
Pehowich pointed out that Trump can always raise alarm over China, but investors in gold will wait to see proof to the president’s assertions before pulling the trigger on any major buy/sell orders.
Direction Will Depend On Friday Outcome
Gold Weekly Chart
Pehowich, who is executive vice-president of investment services at Dillon Gage Metals in Addison, Texas, said:
“Every market is waiting for affirmation on whether a US-China trade deal is happening, and we’ll not know for sure till Friday.”
“There’ll definitely be a flight to safe havens if the trade talks collapse. But if for any reason the uncertainty continues after Friday, we’ll need to cross the recent barrier of under $1,232 to establish new technical strength.”
Commodities chartist Satendra Singh holds a somewhat similar view, describing gold futures as at a “decisive juncture:”
“No doubt that the gold bulls look too eager to take an aggressive move from the current levels. I find that only a sustainable move of gold futures above the level of $1235 will clearly define the intention of gold bulls.”
The most-active US gold futures contract on New York’s COMEX, December, settled down $8, or 0.7%, at $1,222.40 per troy ounce on Monday as the dollar trended higher.
Gold Rated ‘Strong Buy’
Investing.com’s own daily technical outlook recommends a “Strong Buy” for gold, pegging Level 3 Fibonacci resistance—the strongest near-term barrier—at $1,236.93. That leaves a ceiling of less than $15 for gold to stage a breakout to its next level of strength.
Gold traded above $1,360 in February, before three US rate hikes from the first quarter through the third cut deeply into the yellow metal’s prices. Since October, however, gold has rallied, helped by the global selloff in stocks that took it to three-month highs at around $1,244. But with the Federal Reserve planning a fourth rate hike in December, the market is on tenterhooks, unable to both rally or retreat much in the meantime.
George Gero, precious metals analyst at RBC Wealth Management in New York, said on Monday:
“Traders (are) carefully looking at calls prices of $1,235 to $1,250 and puts from below $1,185 to $1,180—all of which, if settled in the money, could become new futures contracts needing margin money.”
Fed Events Could Provide Cues
Fed Chairman Jerome Powell is due to speak on Wednesday on “The Federal Reserve’s Framework for Monitoring Financial Stability” at the New York Economic Club. The central bank will be issuing minutes of its November 7-8 meeting the following day.
Both Fed events are expected to be scrutinized closely by investors for cues on gold market direction. Some gold brokers were, however, encouraging their clients to lock in to gold now, saying the precious metal was undervalued.
Tom Beller, a market strategist with oversight for precious metals at the RJO Futures brokerage in Chicago, said
“We may not hit $1,250 tomorrow. But I think we’re heading there and we’re not that far away.”
“I keep saying it: Gold is a buy. It’s really cheap, if you ask me.”