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James Hyerczyk
Comex Gold
Comex Gold

Gold is trading higher shortly before the cash market opening on Friday as the U.S. Dollar continues to weaken on dampened fears of a full-blown U.S.-China trade war. Gold is currently trading at the upper end of a key technical retracement zone, putting the precious metal in a position to post its first weekly gain in four weeks.

At 0913 GMT, December Comex Gold is trading $1213.40, up $2.10 or +0.17%.

Underpinning gold this week is the weaker U.S. Dollar. The greenback is under pressure because of the unwinding of long hedges placed in anticipation of a full-blown trade war between the U.S. and China. However, events earlier in the week suggest that the tone between the two major economic powers may be weakening.

Investors had been buying the dollar believing that the United States has less to lose from the dispute. But the dollar has weakened this week. Investor capital has been leaving the greenback and flowing back into the emerging market currencies. This has helped prop-up dollar-denominated gold.

Forecast

Based on the early price action, the direction of the December Comex Gold futures contract is likely to be determined by trader reaction to a technical level at $1215.10. Even if this level is overcome, investors still have to deal with a pair of tops at $1218.00 and $1220.70.

Despite the sharp break in the U.S. Dollar against a basket of currencies, gold buyers have been tentative because of rising U.S. Treasury yields and expectations of a Fed rate hike next week. These events could keep a lid on gold prices.

Furthermore, the selling in the dollar can’t go on forever due to diminished concerns over an escalation of the trade dispute. Keep in mind that the trade dispute is an on-going event and we could see an uptick in trade tensions at any time. This would send investors back into the dollar. Furthermore, U.S. tariffs could actually improve the U.S. trade balance, which would further strengthen the dollar.

Gold is in an uptrend on the daily chart. However, traders still face a mountain of resistance at $1215.10, $1218.00 and $1220.70. If the sellers continue to block the buyers, or if the buying volume dries up, gold could easily retreat into a short-term support level at $1205.90. The selling pressure could increase if this level is taken out convincingly.

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