GOLD Analysis
Afternoon: Gold Price face Bearish Pressure Intensifies Amid Trade War Fears and Strong Dollar
Highlights:
- Gold under pressure due to US dollar strength and heightened geopolitical risks from global trade tensions.
- Immediate support at $2755, with resistance at $2800; price action suggests potential for a retracement.
- Trade recommendation: Sell around $2784, targeting $2760, with a stop-loss above $2800.
Overview:
The price of gold has been under significant pressure in recent trading sessions, falling to $2775, as a result of a combination of factors. A major contributing factor is the increased strength of the US dollar, which tends to make gold more expensive for foreign buyers. Additionally, fears of an impending global trade war are looming after US President Donald Trump imposed new tariffs on imports from key global trading partners. Over the weekend, President Trump announced the imposition of 25% tariffs on imports from Canada and Mexico and 10% tariffs on Chinese goods, effective starting Tuesday. This move has triggered a wave of retaliatory measures, with Canada and Mexico already making it clear they would take action, while China has signalled it will dispute the tariffs at the World Trade Organization (WTO) and implement unspecified countermeasures. The trade war risks could cause ripple effects across the global economy, adding further uncertainty, which often benefits gold as a safe-haven asset.
Despite these geopolitical concerns, COMEX gold speculators reduced their net long positions by 3,766 contracts, signalling a reduction in bullish sentiment among investors. Approximately 12.9 million troy ounces of gold have been transported to COMEX-approved warehouses, the highest amount since July 2022, showing that while investors are flocking to gold for safety, their sentiment toward gold prices remains cautious.
Price Action and Technical Analysis:
From a technical perspective, gold prices are currently experiencing a bearish phase, having fallen to $2775. The immediate support level is found around $2755, and if this level is breached, there could be a further decline toward the next support at $2760. The resistance level at $2800 is a crucial psychological barrier that gold would need to break through for any significant upward movement. Any retracement towards this level could present a potential short entry opportunity, especially with the overall bearish sentiment in the market driven by global trade concerns.
At this stage, the price of gold is encountering a consolidation range between the support and resistance levels. As the broader market digests the economic and geopolitical developments, gold prices are likely to remain volatile in the near term. The $2784 price level is a key area to watch, as it could serve as an entry point for traders looking to capitalize on a short-term sell opportunity. A price jump to this level would align with the technical analysis of a short trade, targeting the $2760 support level for potential profit-taking.
In the short term, the combination of a stronger US dollar, the looming trade war, and speculative position adjustments by COMEX traders is likely to put additional downward pressure on gold prices.
Technical Breakdown:
- Support at $2755: Gold prices have a critical support level at $2755. If this level holds, gold could potentially bounce or consolidate at these levels, but if it is broken, the next support is expected to be at $2760.
- Resistance at $2812: A significant resistance lies at $2800. This level has historically acted as a barrier, preventing prices from moving higher in the current bearish trend. A break above this level would suggest a reversal, but as of now, resistance remains intact.
- Potential Entry: Traders looking to capitalize on the bearish sentiment may consider selling around the $2795-2800 level, should the price re-test that area.
Economic Calendar and Key Data:
Market participants will also be keeping a close eye on economic data releases in the coming days, which could impact gold’s price trajectory:
- Core CPI Flash Estimate y/y and CPI Flash Estimate y/y from the Euro Zone: These reports will provide insights into inflationary pressures in the Eurozone, potentially affecting the strength of the euro and, consequently, influencing gold's performance as a safe-haven asset.
- US Economic Data: Reports such as the Final Manufacturing PMI, ISM Manufacturing PMI, and ISM Manufacturing Prices will be key to gauging the health of the US economy. Any indication of economic slowdown or strength could push the US dollar higher or lower, which in turn affects the price of gold.
Trade Action Recommendation:
Based on the current technical outlook, the following trade action is recommended:
- Sell on a price jump to $2795-98: This offers a potential short-entry opportunity, assuming a retracement or failed breakout.
- Target $2760: The first target for profit-taking is $2760, which is a key support zone.
- Stop Loss Above $2815: A stop-loss placed above $2800 ensures that you are protected if the price breaks through the resistance and moves higher, invalidating the bearish outlook.
Support and Resistance Levels:
