Is The Intermediate-Term Bottom In For August Gold Futures?
Shain Vernier • 2 min read
Friday featured a rare positive session for bullion amid the threat of an all-out U.S./China trade war. Investors began to hedge their bets, driving the price of August gold futures north $9.00 per troy ounce. While some of the buying is due to reducing weekend risk exposure, one has to wonder if the rally is the beginning of something significant.
Last week’s Thursday and Friday sessions featured a return of the “Trump factor” to the marketplace. Statements on Twitter criticising current U.S. FED policy, as well as plans for tariffs on $500 billion in Chinese imports, threw traders for a loop. The result was typical — when in doubt, buy gold!
August Gold Futures Technical Outlook
Thus far, 2018 has been a year to forget for gold bulls. Price has consistently sold off, fueled by relative peace on the Korean Peninsula and growth in global equities. The strengthening of the U.S. dollar has not helped matters, as there just isn’t a good enough reason to be long bullion.
A simple look at the daily chart clearly illustrates the macro pattern in this market: sell-off, consolidation, sell-off. As of now, buyers have made a stand in the area of 1225.0. But are their efforts enough to turn the tables for the second half of 2018?
Early next week is going to be an important time for gold traders. Friday’s strong close posted a hard test of the 38% Fibonacci retracement of the current wave (1232.2). If price breaks to the bull above this number, then the Swing Low (1210.7) has a great shot of setting up as a monthly spike low.
From a trading standpoint, playing a breakout scalp above this level is not a bad idea. On the weekly electronic open, a buy from 1232.5 looking for a fast 8-12 ticks is a solid way to start the trading week. Using a tight 1:1 risk vs reward, this trade is highly likely to produce a fast winner.
Of course, trading weekly opens can be tough. Price closed near daily highs on Friday. There is a very good chance that this market may open gap up, in which case the scalp is null and void.
The prospects of a hot U.S./China trade war have begun to shift the overwhelmingly bearish sentiment facing gold. A lengthy standoff is likely to prompt the U.S. FED to abandon a fourth rate hike for 2018, in the spirit of promoting the U.S. export sector. In addition, U.S. corporate earnings will experience a few growing pains until the picture surrounding international trade clears a bit. Factor in the key U.K. resignations surrounding the Brexit process, and there is growing ambiguity facing nearly all global markets.
As uncertainty grows, so does the value of bullion. We will soon find out if the current economic and geopolitical questions are enough to prompt a large-scale exodus from risk. If so, a recovery in the gold markets may be just around the corner.