Gold gapped down on Sunday night following news that the US/Iranian peace talks broke down over the weekend. The precious metal lost around $150 per ounce but found some support around $4,650. It has recovered quite well since the early hours of yesterday and came close to $4,800 in early trade this morning. Gold’s fortunes are once again closely entwined with those of the US dollar. Gold is not behaving as a ‘safe haven’ asset.
Source: TN Trader
In fact, it is clearly now trading as a risk asset, which rises or falls in an inverse correlation with the dollar, which had itself been the major beneficiary of the ‘flight to quality’ seen when hostilities began. This relationship may be holding for now, but it can fall apart very easily. But investors seem convinced that the war is coming to an end, suggesting that oil prices should fall back soon.
This has seen the likelihood of a Federal Reserve rate hike get priced out of markets, while the possibility of a rate cut before year-end has risen. This is weighing on sentiment towards the dollar and supporting gold for now. The bulls will want to see it break and hold above $4,800 to help kick off a more sustained rally. The bears are looking for a retest of $4,400.
