Good morning traders,

GOLD prices closed at 1,916.41, after placing a high of 1,949.31 and a low of 1,862.45. Overall, the movement of the precious metal remained mostly flat but slightly bullish throughout the day. In the first half of the Wednesday session, gold prices followed the previous day bearish trend, with gold posting its steepest sell-off in over seven years. However, after the release of UK economic data, the yellow metal started to move in the opposite direction again, as fears over a coronavirus-led slowdown in the economy were prompted once again.

Gold prices dropped below 1,866 and bounced back very strongly, close to the 1,916 level. The economic damage caused by the coronavirus pandemic was evident on Tuesday, as Britain’s economy shrunk by a record of 20.4% in the second quarter of this year. The reason why this contraction affected has gold prices so significantly, is because it is the most severe contraction reported by any major economy so far.

Another reason behind the rising gold prices was the deadlock in Washington over a stimulus package. US Treasury Secretary Steven Mnuchin said on Wednesday, on the fifth day without talks, that the White House and top Democrats in Congress might not be able to reach a deal on the coronavirus aid package.

However, the US Dollar Index rose in the Asian trading session, but failed to maintain its gains, dropping by 0.3%, to 93.39, on Wednesday. The weak US dollar helped gold to gain in the second half of the trading session.

On the US-China front, US Secretary of State Mike Pompeo said on Wednesday that China’s economic power was a greater global threat than the Soviet Union had been during the Cold War.

In a speech to the senate in the Czech Republic, Pompeo said that the campaigns of coercion and control by the Chinese Communist Party posed an even greater threat, because it is already enmeshed in our economies, politics and societies, in a way the Soviet Union never was.

He also cited the risk of data theft and national security, via apps like TikTok and WeChat. He stated that the US was ready to invest up to $ 1 billion in the Three Seas Investment Fund, in order to protect against China’s opaque lending practices.

On Wednesday, some sources cited that in the trade negotiations between the US and China, to discuss the implementation of the phase-one trade deal, China is likely to bring up the issues surrounding TikTok and WeChat. The escalated tensions between the US and China helped the upward trend of gold prices on Wednesday.

On the data front, the Consumer Price Index from the US for July came in at 0.6%, against the expected 0.3%, supporting the US dollar. At 17:30 GMT, the Core CPI for July also showed an increase, rising to 0.6%, from the estimated 0.2%, boosting the US dollar.

Dallas Federal Reserve President Robert Kaplan said on Wednesday that the resurgence of the coronavirus had muted the US recovery over the past few weeks, and it could also damage improvement in the unemployment rate. This weighed on the US dollar and added strength to the already rising gold prices on Wednesday.

Daily Technical Levels

Support Resistance

1,895.14 1,981.94

1,841.27 2,014.87

1,808.34 2,068.74

Pivot point: 1,928.07

Gold continues to trade within a narrow trading range of 1,915 – 1,955, especially after gaining support at the 1,880 level. The upward trendline has supported the pair at 1,880, and closing of doji candle above this level suggests the odds of a bullish reversal in gold prices. Good luck!