Gold Price Remains Oversold But Short-Term Help on Hand

GOLD PRICE AND US DOLLAR NEWS AND ANALYSIS

• Gold slumps to an 18-month low. US dollar now eases lower.
• USDCNH may lead gold higher on easing US-China trade tensions.

GOLD TRADES AT AN 18-MONTH LOW, US DOLLAR EASES, USDCNH MAY HELP

Gold made a new 18-month low on Wednesday as the US dollar went from strength to strength. The precious metal traded as low as $1,160/oz, a 15% fall from its April high as the US dollar basket (DXY) hit a 14-month high of 96.60. The price has moved lower since then – currently trading at 96.18 – but the dollar remains in overbought territory.

US DOLLAR INDEX (DXY) DAILY PRICE CHART (NOVEMBER 2017 – AUGUST 16, 2018)

shows that traders remain 85% net-long of the precious metal, normallya bearish contrarian sentiment indicator. See how changes in daily and weekly holdings shift investor sentiment.

GOLD AND USDCNH REMAIN HIGHLY CORRELATED

The price of gold and the USDCNH rate have remained in lockstep over the last few months, driven by a combination of US dollar strength and heightened US-China trade war fears. Gold should have been a beneficiary of this risk-off move but instead the Japanese Yen and the Swiss France picked-up the safe-haven bid. News out overnight that the US and China are likely to resume trade talks later this month should ease trade war fears slightly and see the Chinese Yuan strengthen against the US dollar. If the recent correlation between the two asset classes remains, gold should be pushed higher, and the move may be sharp considering that gold remains stuck in oversold territory. Gold has also broken the recent USDCNH correlation even lower, adding weight to a potential sharp turn around.

GOLD AND CHINESE YUAN DAILY CHART (OCTOBER 2017 – AUGUST 16, 2018)

The RSI indicator at the bottom of the daily chart below shows that gold remains stuck in oversold territory. Wednesday’s sharp spike lower looks like it is being reined in, leaving $1,180/oz. and $1,195/oz. both achievable short-term targets.

GOLD DAILY PRICE CHART (FEBRUARY – AUGUST 16, 2018)

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