Price of Gold Fundamental Weekly Forecast – Progress in US-China Trade Talks Biggest Concern for Bulls

Rate cut hopes and a weak U.S. Dollar are likely to underpin prices. Gold could be pressured, however, if the U.S. and China continue to make progress to completing phase one of the partial trade deal. There’s still too much uncertainty surrounding Brexit to call the news bearish for gold.
James Hyerczyk
Comex Gold

Gold edged higher last week, but for the most part, the market was locked inside a trading range as investors continued to digest the progress of U.S.-China trade relations, uncertainty over Brexit negotiations, the weakening U.S. economy and rising expectations of a Federal Reserve rate cut at the end of October.

Last week, December Comex gold settled at $1494.10, up $5.40 or +0.36%.

Gold posted a two-sided trade last week before closing higher as prices remained bound by the October 11 range of $1508.00 to $1478.00. The price action suggests investor indecision and impending volatility.

U.S.-China Trade Talks Source of Volatility

Brexit was a concern, but the price action indicates that U.S.-China trade relations were a bigger influence on the market.

Helping to underpin gold prices was uncertainty over the partial deal announced between the United States and China on Friday, October 11. On paper, it represented progress, which pressured gold prices, but after analysts had a chance to take a deeper look at the plan, it appeared to be filled with holes.

Morgan Stanley said President Donald Trump’s partial trade deal with China is an “uncertain” arrangement at best and there does not appear to be a viable path to reduce existing tariffs at the moment.

Without a durable dispute settlement mechanism in place, another round of tariff increases cannot be ruled out, according to Morgan Stanley.

Evercore analysts said, “Trump’s statement that ‘We are near the end of the trade war’ is not plausible to us. We do not expect tariff cuts in 2020—but are ready to be favorably surprised. And as long as such punitive tariffs remain we would describe US-China economic relations as bad, not good.”

The negative thoughts on the trade deal was the source of most of the support.

Despite the pile-up of negative opinions, toward the end of the week, trade deal optimism resurfaced, helping to keep a lid on gold prices.

U.S. President Donald Trump on Friday said he thought a trade deal between the United States and China would be signed by the time the Asia-Pacific Economic Cooperation meetings take place in Chile on November 16-17.

Meanwhile, Chinese Vice Premier Liu He said on Saturday, “The two sides have made substantial progress in many fields, laying an important foundation for the signing of a phased agreement. Stopping the escalation of the trade war benefits China, the U.S. and the whole world. It’s what producers and consumers alike are hoping for.”

Weak Data from U.S. Rekindles Fears of Economic Slowdown

Weak U.S. economic data also helped underpin gold prices last week. Lower-than-expected results in Retail Sales and the Philly Fed Manufacturing Index helped drive the chances of a Fed rate cut to 93.5% on Friday, according to the CME FedWatch Indicator.

Weekly Forecast

Rate cut hopes and a weak U.S. Dollar are likely to underpin prices. Gold could be pressured, however, if the U.S. and China continue to make progress to completing phase one of the partial trade deal. There’s still too much uncertainty surrounding Brexit to call the news bearish for gold. That remains the wildcard. U.S. economic data is limited to a report on Durable Goods, but with rate cut expectations at 93.5%, the results of this report aren’t that important.

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