Gold futures hit a six-month low on Tuesday. The catalysts were a stronger U.S. Dollar and the failure to hold key technical levels. The escalating trade tension between the U.S. and China drove investors into the safety of the U.S. Dollar. This weakened demand for dollar-denominated gold.
The close below a key technical level on the charts late last week continued to attract sellers. This has led to increased technical downside momentum.
Gold bulls are also being driven out by expectations of further Federal Reserve interest rate hikes later in the year.
In economic news, reports on the U.S. housing industry came out mixed on Tuesday with Building Permits underperforming and Housing Starts exceeding expectations.
Building permits fell by 4.6 percent to a rate of 1.301 million units, the lowest since September 2017. Economists had forecast housing starts declining to a rate of 1.350 million units.
Housing starts rose 5.0 percent to a seasonally adjusted annual rate of 1.350 million units last month, the Commerce Department said on Tuesday. That was the highest level since July 2007. Data for April was revised slightly to show starts falling to a rate of 1.286 million units instead of the previously reported pace of 1.287 million units.
U.S. Treasury yields firmed a little after the release of the housing data, putting further pressure on gold prices.
We’re looking for the downside pressure to continue to push gold prices lower, while limiting gains. The inability to react positively to potentially bullish geopolitical events suggests the lack of buyers at this time.
It doesn’t make sense to step in front of the sellers, or to try to pick a bottom either. When the trend is ready to turn, buyers will return, and upside volume will increase. However, the market needs to clear out the short-sellers before a rally can even start. Furthermore, without a support base, any rally is likely to fail.
The threat of a trade conflict is expected to continue to be the theme of the day on Wednesday. However, gold could continue to weaken on this news if investors continue to move money into the U.S. Dollar, Japanese Yen, Swiss Franc and U.S. Treasurys for protection.
Basically, gold needs to find its identity to even begin to attract buyers. In other words, it has to start acting like a safe haven asset again during tumultuous times, or investors will move their money somewhere else.
This article was originally posted on FX Empire
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