Gold Prices Show Muted Reaction to Trade Deal

Gold prices continued to consolidate higher but volatility has remained muted since the US-China trade deal was announced official.

Gold Bar

The price of gold found a bottom in the early week near $1535 and has been moving higher since. It’s important to note, however, that the upward movement has generally lacked momentum.

On an hourly chart, the recovery looks to potentially be forming a bearish flag pattern.

The US and China officially put forth the trade deal that was months in the making and long weighing on the markets. With most market participants knowing that it was coming the overall market reaction has been muted.

The dollar seems to have reversed lower and is under a bit of pressure since yesterday.

The US Dollar index (DXY) had shown upward momentum last week after breaking upward from a range that had contained it for about two weeks. However, the US jobs report on Friday served to cap the recovery and initiated a new, albeit smaller range.

DXY broke lower from it on Wednesday and all of the major currencies have advanced against it since. This has been underpinning gold prices so far.

The price of silver is lagging in the early day. While gold prices trade flat ahead of the North American open, silver is down about a third of a percent.

Gold Hourly Jan 16
Gold Hourly Jan 16

Between the price action in silver, and as gold is barely holding the lower bound of the rising trend channel, there is some potential for weakness in the session ahead for gold prices. On the other hand, a weaker dollar will tend to keep underpinning the yellow metal.

Volatility is expected as the US reports retail sales figures in the early North American session. As well, the European Central Bank will release minutes from their latest meeting just ahead of the open.

A major technical level to watch in gold falls at $1562. This level was obtained from a monthly chart and was well-respected between 2011 and 2012. The same level triggered a turn lower on Friday after the NFP report triggered a rally toward it.

The near-term outlook weighs on this level. A bullish break will tend to renew upside momentum. But while below it, the downward trend that began after the deescalation between the US and Iran will tend to remain intact.

Earlier this week, we issued a trading idea on silver, full details can be found by following the link.