It's no surprise to most traders that Gold has been in a Wedge (Consolidation) since earlier this September. This is mostly being feuled by U.S.-China Trade Disputes and the indecision that revolves around the outcome.
Just to update the current situation:
- Both nations are coming close to signing what they consider the "first phase of negotiations"
- These negotiations are in an attempt for both countries to maintain their global supply chain dominance.
- They were suppose to sign the agreement at the Apex summit in Chile, however, due to recent riots in the region they've had to relocate. Both countries cant agree on the new location.
- China has been clear that it will not sacrifice any of its current activities for the sake of the deal so this might pose a problem for the deal. Trump wants this deal to go through because it will help the election.
Now that we covered the basic idea of what's happening, lets talk about what to look out for in the markets:
If there is an arrangement that gets signed and it is mutually beneficial then traders and investors will likely be bearish Gold (XAU/USD). Its important to remember that Gold is a safe haven commodity. Which means when people are scared about losing their money in the currency (FX) or equity (Stock) markets they move into Gold.
So... Good trade deal = Bearish Gold
Traders will see the deal as being positive for the economy, which reduces the demand for safe havens.
Stock Market crash in the United States would = Bullish Gold
Institutions will get scared of losing money and look for somewhere to put their money (out of equities and into less risky markets). Traditionally, investors would move their money into the Bond market, which is essentially like betting on the U.S. government staying around. However, due to the current interest rate situation (which we'll cover in another post) the bond markets are not in high demand. So rationally investments like Gold and other safe havens will see a spike.
Gold prices are likely to see new highs leading into next year. Euro weakness, global trade uncertainty, Brexit tensions, and global manufacturing slow downs are all likely players that will ultimately play into safe haven flows. Uncertainty is what drives players out of the risky and profitable game of currencies and equities (Stocks) and into safe and low yielding (They don't pay as much) investments such as Gold.