Gold Traders Blow Up Support on Heavy Liquidation

Gold grabbed the headlines on Friday, dropping sharply to a three-week low on aggressive long liquidation. The market had been rangebound for over a month with traders refusing to commit to either side of the market given geopolitical concerns over trade and worries about the direction of global interest rates.

On Friday, August Comex Gold settled at $1278.50, down $29.80 or -2.33%.

The timing of the steep sell-off suggests gold investors were probably building long positions ahead of Wednesday’s U.S. Federal Reserve interest rate decision and monetary policy statement as well as Thursday’s data from the European Central Bank.

The hawkish Fed and dovish ECB helped make the U.S. Dollar a more attractive investment while driving down demand for dollar-denominated gold.

Ironically, the selling pressure on gold actually increased on Friday after President Donald Trump said that the United States will implement a 25 percent tariff on $50 billion of goods from China and Beijing quickly said it would hit back with its own tariffs. Many analysts had expected gold to be bolstered by the prospects of a trade war.

Additionally, gold buyers failed to respond to potentially bullish comments from the International Monetary Fund. On Thursday, the IMF said that Trump’s new tariffs threatened to undermine the global trading system.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil settled sharply lower on Friday on massive liquidation ahead of next week-end’s key meeting between OPEC and several major producers,

August WTI crude oil settled at $64.85, down $1.84 or -2.84% and August Brent crude oil closed the session at $73.44, down $2.50 or -3.40%.

Traders primarily reacted to the news that two of the world’s biggest producers, Saudi Arabia and Russia, indicated they were prepared to increase output ahead of an OPEC meeting in Vienna next week.

U.S. Stock Market

The major U.S. equity markets broke sharply early in the session on Friday on increased worries about a U.S. – China trade war. Bargain-hunters, however, stepped in late in the session to help the indexes recover most of their losses.

In the cash market, the benchmark S&P 500 Index settled at 2779.66, down 2.83 or -0.10% and the blue chip Dow Jones Industrial Average finished at 25090.48, down 84.83 or -0.34%.

In addition to imposing a 25 percent charge on up to $50 billion in Chinese goods, President Trump said the U.S. would impose more tariffs on Chinese goods if China retaliates with duties of its own on American products.