Gold 1 OZ (XAU=X) investors are jumping into gold as the U.S.-China trade war has turned into a currency war
Fear is surging through financial markets and investors are jumping into gold as the U.S.-China trade war has turned into a currency war. The next target for gold in this environment is clearly $1,500 an ounce, analysts said.
Overnight, the Chinese government let the yuan rise above 7 against the U.S. dollar for the first time in more than a decade. Along with the government allowing its currency to weaken, China has directed state-owned companies not to buy U.S. agricultural goods.
“The trade war has turned bad as it has ever been and you are starting to see investors jump into safe haven assets like gold and U.S. Treasuries,” said Bill Baruch, president of Blue Line Futures. “I don’t think we are at peak panic yet so gold has room to move higher. Gold is being driven by strong fundamental demand.”
The latest evolution in the U.S.-China trade war is weighing on U.S. economic growth and that is causing markets to price in further interest rate cuts from the Federal Reserve. The CME FedWatch Tool shows that markets see a more than 16% chance of a 50 basis point cut at the next meeting in September.
The aggressive forecast for more monetary policy easing has caused 10-year bond yields to fall to nearly a three-year low. The yield on U.S. 10-year last traded at 1.78%.
The drop in bond yields is really what is driving gold prices, said Fawad Razaqzada, technical analyst at City Index. Razaqzada added that he doesn’t expect sentiment to change anytime soon, noting that sentiment has completely shifted since the Fed’s last monetary policy decision less than a week ago.
“Because of all the new uncertainty and escalating trade war I think it would be a mistake for the Fed not to cut again in September,” he said. “A new easing cycle will continue to drive gold higher.”
Both Baruch and Razaqzada said that they see $1,500 as the next likely target for gold in the near-term. Baruch added that there is some major resistance around $1,485 as that is the 50% retracement level from gold’s 2011 highs to the 2015 lows.
Overall, the bias in prices is: Upwards.
Note: this chart shows extraordinary price action to the upside.
The projected upper bound is: 1,506.74.
The projected lower bound is: 1,427.61.
The projected closing price is: 1,467.18.
A big white candle occurred. This is generally considered bullish, as prices closed significantly higher than they opened. If the candle appears when prices are “low,” it may be the first sign of a bottom. If it occurs when prices are rebounding off of a support area (e.g., a moving average, trendline, or retracement level), the long white candle adds credibility to the support. Similarly, if the candle appears during a breakout above a resistance area, the long white candle adds credibility to the breakout.
During the past 10 bars, there have been 6 white candles and 4 black candles for a net of 2 white candles. During the past 50 bars, there have been 29 white candles and 21 black candles for a net of 8 white candles.
An engulfing bullish line occurred (where a white candle’s real body completely contains the previous black candle’s real body). The engulfing bullish pattern is bullish during a downtrend. It then signifies that the momentum may be shifting from the bears to the bulls.
If the engulfing bullish pattern occurs during an uptrend (which appears to be the case with PREC.M.XAU=), it may be a last engulfing top which indicates a top. The test to see if this is the case is if the next candle closes below the top of the current (white) candle’s real body.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 91.4497. This is an overbought reading. However, a signal is not generated until the Oscillator crosses below 80 The last signal was a sell 11 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 65.35. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 22 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 241.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a sell 10 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 0 period(s) ago.
Rex Takasugi – TD Profile
PREC.M.XAU= closed up 23.145 at 1,463.600. Volume was 8,900% above average (trending) and Bollinger Bands were 6% narrower than normal.
Open High Low Close Volume___
Short Term: Overbought
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 1,429.52 1,385.62 1,304.26
Volatility: 19 18 13
Volume: 2,756 551 138
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
PREC.M.XAU= is currently 12.2% above its 200-period moving average and is in an upward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect very strong flows of volume into XAU= (bullish). Our trend forecasting oscillators are currently bullish on XAU= and have had this outlook for the last 2 periods. The security price has set a new 14-period high while our momentum oscillator has not. This is a bearish divergence.
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