Gold April contract settled at $1.347 on last Friday, up 1.5%, ending the best week of the last 2 years with total weekly gains almost 3% driven by a cocktail of Geopolitical risks, weaker dollar currency and a turn of investors to more “safe heaven” assets.
Fundamental Analysis: A risky environment made for Gold
- Iran Sanctions: The positive environment for Gold started when the US president mr. Trump replace the Secretary of State mr Tillerson with the more Iran hawkish mr Pompeo at the start of March, signaling the raise of risk of US re-introduction of the Oil sanctions against Iran which would be announced at May 12 , 2018 and further sanctions against Venezuela and North Korea. Furthermore, the Saudi Arabia Crown Prince mr Salman met with mr Trump last week in Washington DC, discussing the possibilities the US to walk away from the Iran Nuclear deal , hurting the Iran’s ability to produce and export crude oil.
- Trade War:The second supportive development for Gold was the US president mr. Trump decision to slap tariffs on Steel and Aluminium imports in USA and the new tariffs on $50 billion of China made goods. China immediately responded by targeting $3 billion of US imports including fruits, pork and recycled aluminum while contemplating additional retaliatory measures.As the market sentiment continues to deteriorate, the damage from a further escalation of the trade conflict of USA and China could be much greater.
- Dovish Fed & US $ weakness: After the 0.25% interest rate hike from Federal Reserve last week, the Gold rallied almost $30 because the investors found “dovish” the signal from Fed for only three rate hikes this year instead of the expected four rate hikes.
- The above cocktail of risky developments for the global economy, sends the investors to more “safe heaven” assets such as Gold, Japanese Yen and US+German Bonds. Add to that concerns over the potential negative impact on the world economy where investors are preparing to pull back the global growth forecasts for 2018 as a result of the Trump tariffs, depending on how aggressively China responds and the possibility of plunging stock markets and there is an emerging toxic cocktail in which gold can thrive.
Technical Analysis: Strong Resistance level at $1.360
Gold has rallied last week reaching the $1.350 level after it broke a technical Triangle formation with lower highs and multiple lows at the strong support level of $1.310 level. Gold price has rejected many times around the $1.360 level, forming a strong resistance level where a possible break above it might lead the prices towards $1.375 and eventually to test the $1.400 level. Gold needs push through resistance at $1,360 an ounce to signal that the market has broken its near-term trading range.