The gold market is trading moderately lower in early action Monday as investors digest the latest news. Increasing optimism over a potential U.S./China trade deal is fanning appetite for risk today and possibly giving some investors reason to take profits in the metals complex.
Is a Trade Deal Imminent?
It has been widely reported today that the U.S. and China are very close to a deal on trade. A formal agreement on trade could potentially be reached by the end of the month. According to a recent report from the New York Times, the two sides have agreed on a pact that would require China to purchase large amounts of U.S. agricultural and energy products in addition to making it easier for American companies to operate in China. The U.S. would reportedly roll back the tariffs on at least $200 billion worth of Chinese imports.
A potential deal still has numerous issues to be worked out before it can be signed and put into action, however, the recent progress being reported is significant and could put an end to the war on trade that has already had a significant impact on the economies of both countries.
An agreement being reached could be a major victory for President Donald Trump. Restoring the balance of fair trade has been a major issue taken on by the Trump administration and a U.S./Chinese deal could be viewed as a significant win for the administration at a time when it is dealing with failed nuclear talks with North Korea and numerous ongoing legal issues.
Higher equity markets could potentially keep the pressure on perceived safe haven asset classes. Although the benchmark Dow Jones Industrial Average is only modestly higher today, it remains within striking distance of previous all-time highs. In Asia, the Shanghai Composite finished higher by 1.12% as investors cheered on the potential trade deal. Chinese stocks have been trending higher in recent months and could potentially see further upside.
The gold market is under pressure in early action as investors flock to stocks and risk assets. The spot gold price was recently down $10.78/oz at $1285.62 per-ounce. The recent uptrend that had been in place has now been neutralized. The bears have the near-term technical advantage and could potentially look to push prices lower before they find significant buying interest.
The market may find some support around the January lows in the $1281 region, while the first major upside target for the bulls is a solid close above key resistance at $1,300.