Gold Jumps to 6-Year highs but Retraces after Yuan Appreciation

Market sentiment is currently on a fragile situation as experts are finally accepting that there will be no deal between the U.S. and China in the middle term. In fact, Goldman Sachs’ analysts now believe that an agreement will not be reached anytime soon.
Mauricio Carrillo
Dollar Jumps to 6-Year highs but retraces after Yuan Appreciation
Dollar Jumps to 6-Year highs but retraces after Yuan Appreciation

It’s the war! Gold jumped to highs since May 2013 after the trade war got intensified this week. Other metals such as silver, copper, palladium, and platinum are consolidating levels.

In the same framework, the dollar index found support at the 50-day moving average at 97.20 earlier in the day, and it is recovering ground above the 97.50 area.

U.S. names China as a currency manipulator

USDCNY Daily chart August 6

Markets are returning to a more “normal” situation after being shaken on Monday by the latest development in the trade war between the United States and China.

On Monday, China retaliated the United States by allowing the USD/CNY to break above the 7.000 area and to reach maximums in over a decade at 7.005. Then, the White House officially declared that China is a currency manipulator.

Later, China stabilized its currency overnight, lifting somehow the market sentiment and allowing stocks and DXY getting some gains.

Market sentiment is currently on a fragile situation as experts are finally accepting that there will be no deal between the U.S. and China in the middle term. In fact, Goldman Sachs’ analysts now believe that an agreement will not be reached anytime soon.

“While we had previously assumed that President Trump would see making a deal as more advantageous to his 2020 re-election prospects,” analysts at Goldman Sachs said in a recent note to clients, “we are now less confident that this is his view.”

“News since President Trump’s tariff announcement last Thursday indicates that U.S. and Chinese policymakers are taking a harder line, and we no longer expect a trade deal before the 2020 election,” the team led by Chief Economist Jan Hatzius said in the note.

So, risk aversion is all over the market, and experts will closely watch any trade war-related development.

Think that the latest movement made by China allowing its currency to get some strength allowed stocks and dollar to stabilize, then, pushing gold to trade sideways.

Gold consolidates levels above 1,460

XAUUSD daily chart August 6

Gold is trading positive on Tuesday, however, the unit is currently consolidating levels above the 1,460 area after peaking at 1,475, its highest level since May 2013.

Currently, XAU/USD is trading 0.15% positive at 1,466. Technical conditions suggest more room for the upside; but overall, any rise or decline will be more fundamentally-based on trade war developments.

As the market is now accepting the fate of a recession fueled by the trade war, risk aversion is the topic of the day. The deal is how deeper will be that aversion. For now, DXY is trading positive, sending the gold a bit down, but the metal is still the king.

To the upside, markets will see resistance at 1,480 and 1,500 as the first frontiers to deal. Then, the yellow metal will find a critical resistance at 1,530.

To the downside, the 1,450-1,460 is the first support area to watch, then, XAU/USD will return into the range between 1,400 and 1,450.

Silver remains in range

XAGUSD daily chart August 6

Silver is trading almost flat on the day after advancing to 16.60 overnight, but returning amid dollar recovery in the last hours. Overall, XAG/USD is trading in a range between 16.20 and 16.60.

Technical conditions for the metal are weak, and studies suggest more room for the downside, especially below the 16.00 area, which is acting as critical support. Below there, check for the 15.60 area.

To the upside, the 16.60 level has been acting as a middle term resistance since July 19. It will be the first level to watch. Above there, 16.80 will be the last defense before the critical 17.30.

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