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Analysis News:::2019-11-08

A staggering throne: gold could not endure the trade compromise between US and China


For a long time, yellow metal was in the favorites of the market. The price of gold rose steadily as investors feared a recession in the global economy amid the trade conflict between the US and China. They used the safe haven asset, preserving capital, but reaching a compromise between Washington and Beijing made adjustments.

The warming in the trade confrontation of both states turned out to be extremely unfavorable for gold. The precious metal fell by almost $ 30 per 1 ounce, analysts say. At the same time, treasury bonds experienced the most powerful price collapse since the summer of 2019. Many experts are sure that the thaw in relations between the US and China has become only a catalyst for collapse, and not its cause. They believe that the prerequisites for the fall have matured for a long time due to improved forecasts regarding the growth rates of the global and American economies.

Moreover, experts draw attention to the dramatic reversal of strategies built on the expectation of a recession. They are sure that this will be the beginning of the end of familiar trends. Thus, analysts recommend that market participants review their previous trading plans so as not to make a mistake with a further choice.

According to experts of the precious metals market, one of the important drivers of the collapse of the "gold" prices was the growth in the yield of a number of treasury bonds. Analysts recorded a sharp increase in yield on 10-year French and Belgian bonds. Their price overcame 0% for the first time in several months.The yield on German bonds increased by 10 points, while the global stock of bonds with yields below zero fell to $ 12.5 trillion.

According to analysts, key precious metals, such as gold and silver, are sharply sagging amid rising profitability. Raising real rates reduces the attractiveness of gold at times. It can be recalled that this asset usually rises in price amid falling yield on debt securities.

During the trade war between the United States and China, yellow metal soared to $ 1,556 per 1 troy ounce. Taking advantage of the unstable geo-political situation, gold has increased its potential. Its price has been rising for a long time. Now, with the warming of relations between the two powers and the emergence of hopes for a trade truce, gold has fallen in price again. The prices of these precious metal tested $ 1458 per 1 ounce mark.

Over the past few weeks, yellow metal has been trading near $ 1,500 for 1 ounce. In the future, this price became the boundary, the reference point from which the precious metal began its decline. According to analysts, the level of $ 1,500 became psychological resistance. On Thursday, November 7, gold was trading at $ 1,485 per ounce. Following the key precious metal, silver dipped, dropping to $ 17.58 per ounce.

On Friday, November 8, the yellow metal tested the levels of $ 1470– $ 1471, trying to get beyond this price range.


Despite all efforts, the sinking of the gold continued. The precious metal fell to $ 1466– $ 1467 and still runs in this range.


Today, the pressure on the yellow metal recorded during yesterday's trading continues. Oil was added to the fire by a statement by the representative of the Ministry of Commerce of China. It was stated that China and the United States agreed to mutually reduce tariffs on goods of each side. This provoked the appreciation of the yuan and weakened the position of the yen and gold.

At the moment, the precious metals market is resisting price increases, but the situation is not in favor of a key safe haven assets. Therefore, traders have already put in the price of gold the conclusion of a trade agreement between the United States and China. Experts allow it to roll back to the level of $ 1425 as part of the correction and they are sure that active buying of gold by central banks can protect the precious metal from further fall.

L Kolesnikova
Analyst InstaForex
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