As of this writing, Gold is trading at $1346 per ounce however the white metal is hovering around $15.01.Before starting our analysis we would like to mention the causes due to which we have witnessed a steep incline in the precious metal sector, especially in gold .
-The uncertainty regarding the U.S-China trade war
-Trump last week tweet about the possibility of imposing 5% of tariffs on Mexico
-The 10-year-3months yield curve inversion
-Speculation by the commentators saying the Fed is going to cut rates next month
All the mentioned causes blended together proved to be negative for the U.S equity market hence the safe heaven buying was obvious as traders and investors risk appetite dropped. Gold was up 2.7% while silver jumped 3.2% last week. Above all the reasons Speculation by commentators about the rate cut and trump tweet threatening Mexico of imposing 5% of the tariff were the main force behind the Gold and silver rally. One may think why we are not counting the U.S-China trade war and The 10-year-3months yield curve inversion? You need to keep in mind that the U.S-China trade war officially started on July 6, 2018, when gold was trading at around $1270.We saw the gold decline for about $100, formed a local bottom at $1170 on Aug 2018 even after the trade war was in full effect, we could use the same analogy with The 10-year-3months yield curve inversion.
Does that mean both the mentioned reasons are useless? obviously no,If trade war gets more ugly in the future it's the highest probability that we could witness a significant surge in the precious metal sector but keep in mind these are long term factors which do not affect the price like we have witnessed in the past week until unless severe risk deteriorating news doesn't come out from these factors.
Now let's discuss the remaining causes which were the main force behind the Gold and silver rally.
if rate cut happens next month rate it would send the wrong message. And it would be a hint of panic on the part of the Fed. That's why We do not believe a rate cut is justified despite the headwinds from the current trade wars between the U.S. and China.
The recent move which we have witnessed have happened too fast. Usually these types of moves whether positive or negative are not sustainable as they are based more on speculation that they are based on any fundamental or technical shift. Those who are involved in precious metal trading and investing from a while understand the importance of $1350-$1370 level. we have already seen seven previous attempts of gold to break above its key psychological resistance without any success so far. The recent high was formed in gold was in July 2016 at $1374, since then we haven't seen the yellow metal to touch $1370 level. we believe we could see another run down towards $1,250 or even lower.