Gold was slightly lower overnight and looked poised to test yesterday's lows and retrace more of Monday's gains. This was despite news about the US banning Huawei equipment from US networks, which raised concerns about a flare-up in trade tensions.
We continue to think that gold will be supported on setbacks by worries about the trade dispute, which we doubt will dissipate quickly. President Trump's announcement yesterday that tariffs on European autos would be postponed for six months was greeted with some relief, and this seemed to lend support to the stock market.
We just don't see trade tensions being resolved soon, as neither side appears ready to give in. US economic data released early in the session on Wednesday were troubling, with retail sales well below trade forecasts, industrial production at a nine-month low and capacity utilization at a 14-month low, and this feeds long-term economic concerns and lends support to gold.
An escalation in the US/Iran dispute could also feed safe-haven flows to gold. The June Dollar Index pushed up against trendline resistance on Wednesday. A break above there could spark a quick rally, which could lead to a quick decline in gold.
Gold may be getting short term overbought, but we could argue that the long term trend is turning higher.
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Non-Reliance and Risk Disclosure: The opinions expressed here are for general information purposes only and should not be construed as trade recommendations, nor a solicitation of an offer to buy or sell any precious metals product. The material presented is based on information that we consider reliable, but we do not represent that it is accurate, complete and/or up to date, and it should not be relied on as such. Opinions expressed are current as of the time of posting and only represent the views of the author and not those of Zaner Financial Services LLC, unless otherwise expressly noted.
