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James Hyerczyk

Gold finished lower, producing a potentially bearish chart pattern that tends to indicate the selling is greater than the buying at current price levels, but doesn’t necessarily indicate an impending change in trend. In this case, it probably indicates investors have become a little shy about buying strength and would prefer to re-enter at more favorable prices, or in a value area.

Last week, December Comex gold settled at $1529.40, down $8.20 or -0.53%.

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The week started with aggressive Asian and European investors chasing the rally from August 23. This move was fueled by an escalation of the trade dispute between the United States and China. Ironically, the rally stopped at $1565.00 when President Trump made an announcement that slightly “decelerated” the trade dispute.

Resumption of Trade Talks Bearish Influence

President Trump said Beijing was actively reaching out to Washington to resume trade negotiations and “make a deal” to end a spiraling trade war. Trump made his remarks at a Group of Seven (G-7) summit in France with fellow world leaders, many of who had expressed concern over the impact of a deepening trade war between China and the U.S.

“I think we’re going to have a deal, because now we’re dealing on proper terms. They understand and we understand,” Mr. Trump said. “Very big things are happening with China.’

Later in the week, the 2-year/10-year U.S. Treasury yield curve inverted, which some believe is signaling a future recession, however, gold remained pressured by increasing demand for risky assets.

Gold was further pressured on August 29 after China said it is willing to calmly resolve the trade dispute with the United States and is against any further escalation in tensions, Gao Feng, spokesman for China’s Ministry of Commerce, said Thursday.

“We firmly reject an escalation of the trade war, and are willing to negotiate and collaborate in order to solve this problem with a calm attitude,” Gao said, according to a CNBC translation of his Mandarin-language remarks. He noted that the Chinese and U.S. trade delegations have maintained “effective” communication.

Shortly after Gao’s comments were released, the United States and China announced that trade talks would begin on Thursday, September 5.


Weekly Forecast

With trade talks between the U.S. and China set to resume on September 5, and the market already pricing in a 25-basis point rate cut by the Fed later in the month, there doesn’t appear to be any incentive for gold traders to continue to drive the market higher at current levels so I think we’re likely to see a pullback into value zone that may prove to be attractive to buyers.

Furthermore, gold traders should also pay attention to the Euro. It was a plunge in the Euro last week that drove the U.S. Dollar index to its highest level of the year. This led to a drop in demand for dollar-denominated gold.

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