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Gold Monthly Forecast – August 2018

By:
Colin First
Published: Aug 4, 2018, 08:53 UTC

The gold prices have taken a beating in July but this was quite expected considering the weakness in the gold markets since the break of the lows of the range.

Gold daily chart, May 23, 2018

Gold market was on steady decline across the month of July 2018 with over 4% decrease in value as traders replaced precious metals and traditional safe haven instruments with US Greenback. Investors betting on a stronger U.S economy and higher interest rates have sought out the dollar, sapping any benefits gold and other so-called “safe havens” might have gained from global trade tensions between the world’s largest economies. US Economy’s outlook has remained positive in recent times and with multiple rate hikes in way USD continues to attract more investors despite fear of trade war impacting the market. First week of July saw gold move range bound near monthly highs due to multiple factors such as US President Trump threatening World Trade Organization after EU spoke of retaliation for US tariff on Automotive sector, Canada imposing tariff on US goods worth $12 billion in response to steel & aluminum tariff imposed by US government and US tariff on Chinese goods taking effect on last day of the week as investors focused on 2 day US Fed Rate decisions. The price action remained well within $1237 to $1260 price range.

Gold Pushes Lower

Gold hit the month’s high of $1265.90 as trading session began for the second week as Sino-US trade war and retaliatory tariff imposition on both countries remained the main focus but gold price began to see steady decline in second week as Investors took to investing in US Greenback over gold or other safe haven instruments and given the fact that Chinese import of US goods are very less while US tariff accounted for nearly $200 billion greatly affecting Chinese economy analysts predicted that US would remain on top in case of intense trade war which provided strong support to dollar bulls. China who is the major player in global market for Gold aside from USA reduced its gold investments as dollar denominated gold was costly investment especially when the asset yielded no interest in long term holdings resulting in Gold losing its luster. While NATO meeting outcome which turned sour gave gold a minor boost, strong inflation reading and hawkish comment from Fed’s Jerome Powell on US economy gave US Greenback positive momentum resulting in gold continuing its downtrend movement.

Gold Weekly
Gold Weekly

Gold continued its downtrend movement in both third and fourth week of June hitting new 2018 low’s but gold gained minor uptrend triggers on multiple occasions such as spike in demand for gold ahead of Trump-Putin summit, ahead of EU-US trade war related talks and before Jerome Powell’s congressional testimony from which investors hoped to gain clues on further rate hikes. Gold did make some uptrend movement on each of these triggers but US dollar’s outlook remained positive in medium to long term which resulted in continued decline despite deviating on multiple occasions. The decline in third week of June was caused due to two major events which helped USD, an upbeat testimony by Fed Chair Jerome Powell in front of congressional committee and when Gold hit lowest for month of June at $1211.49 on 19th July 2018 as Powell reiterated his case for raising interest rates to keep the U.S. economy on a sustainable path as Trump confirmed that despite expressing his dislike for Fed rate hikes he will not interfere with their decisions and Fed members confirmed that President Trump has no say to change Fed’s rate hike decisions.

Gold Looking to Bounce But Unlikely to Get Far

The last week of July saw USD continuing to grow strong while 10 year US treasury yields hit 5 week high which resulted in continued bearish price action in Gold market. But gold managed to stay above the month’s low thanks to volatility gained ahead of EU-US tariff related talks which ended on positive note temporarily weakening US Greenback. As month came to an end in first week of August which had two days from July’18, gold moved in a narrow range with investors focus shifting towards back to back central bank monetary policy meetings scheduled across the week. Post updates from US Fed meeting, gold continued to decline for rest of week reaching new 2018 lows around $1204/$1207 price range. When looking at pair from technical perspective, 5-month and 10-month moving averages are biased toward the bears. The relative strength index (RSI), which pierced the ascending trend line in May, has now found acceptance below 50.00 (in the bearish territory). As a result, the yellow metal could continue losing its shine for the rest of the year and is seen revisiting the December 2016 low of $1,122 in early 2018. While the long-term outlook has turned bearish, in the short-term a minor corrective rally cannot be ruled out as the metal looks oversold as per the daily chart indicators.

About the Author

Colin specializes in developing trading strategies and analyze financial instruments both technically and fundamentally. Colin holds a Bachelor of Engineering From Milwaukee University.

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