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David Becker
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Gold daily chart, May 13, 2019

Gold prices broke out on Monday as trade tensions escalated with China retaliating in the wake of the installation of increasing US Tariffs. The response from China, will likely be countered by the US which will not be good for riskier assets. Gold prices rallied on safe haven concerns, as the dollar eased and US yield declined.

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Technical Analysis

Gold prices broke through trend line resistance and are now poised to test target resistance near the April highs at 1,310. Support on the yellow metal is seen near the former breakout level near 1,294 and the 50-day moving average at 1,291. Momentum is positive as the MACD (moving average convergence divergence) histogram is printing in the black with an upward sloping trajectory which points to higher prices. The fast stochastic also surged which reflects accelerating positive momentum. The current reading on the fast stochastic is 80, at the overbought trigger level which could foreshadow a correction in gold prices.

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Trade Tensions Rachet Up

Trade tensions between the US and China are rising and generating negative sentiment.  Talks between US and Chinese negotiators ended Friday with no breakthrough, and there is no schedule for another round of talks. This appears to be getting uglier.  A story in the WSJ, said that the Trump Administration believed that negotiations were close enough to begin discussing a signing ceremony.  Reports suggests the US is giving China one month to reach an agreement or on another $325 billion of Chinese imports will receive tariffs.   The rhetoric from each side rose over the weekend suggesting that things will get worse before they get better.  In addition to gold prices rising other safe haven assets such as the yen and implied volatility rose. With the dollar on the decline because of lower US yields, gold prices have an opportunity to continue to rally.

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