Gold is higher this morning despite the nearby dollar index reaching its highest level in two years overnight, as sharply lower equity markets are contributing to safe-haven inflows into the precious metals.
Having tested the 200-day moving average three times in the past month, gold looks vulnerable to a selloff. It showed little reaction to the Fed minutes release on Wednesday, as they suggested that the Fed is in no hurry to adjust monetary policy.
It also conveyed a slightly optimistic tone towards the US economy, and that is bearish for gold. We would argue that until there is some bad news for the economy, the gold market is likely to stay under pressure.
Treasury Secretary Mnuchin stated that the United States is at least a month from enacting its proposed tariffs on $300 billion in Chinese imports, which could be interpreted as an opportunity to achieve some sort of trade agreement with China. The US and China seemed to have underestimated each other's resolve when regarding these trade talks, and it gets more difficult for them to come to an agreement the further we go down this road of tariffs and retribution.
That could be a long-term supportive factor for gold but probably not until the trade issues start to show a more widespread effect on the economy. In the meantime, gold is subject to a selloff if it takes out the May low.
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