Gold prices hit five-month lows on Monday, as the bearish pressure on the safe haven metal has intensified after the reports that US and China decided to put the trade war “on hold”. Good news from this front fuelled demand for risky assets and pushed the greenback to fresh 2018 highs. Against this backdrop, the yellow metal broke below the previous lows around $1,285 and now threatens the support area of $1,280.
Despite the oversold conditions, gold is yet to hit the bottom, so it’s too early to buy the metal at this stage. The dollar looks set for further gains amid the rising US yields and decent economic fundamentals, while the easing US-China trade tensions only add to bullishness for the currency. This is the additional negative factor for the precious metal and for the risky assets on the whole.
Therefore, gold will likely continue to suffer losses in the coming weeks before it finds a bottom. On the way south, the price may challenge the $1,250 level in the medium term, after a break below $1,280. The fact that the metal is trading below the psychological $1,300 figure and the 200-DMA around $1,306.50 confirms the bearish scenario.
By Helen Rush
Senior Analyst at Capital Markets