Gold is being put to the test today

There are many winners in today’s market action but there is a big loser as well: Gold. It’s down $95 to $3228 today as the great decoupling may not happen after all.

The news looks bad for gold but I’m carefully watching the technicals. Gold has so far held the May 1 low of $3201 and that’s a good sign for the bulls. We’ve seen some heavy gold selling in the New York 9 am hour through the equity open in the past year so I think that’s a delicate time. If it can hold here and if Trump strikes a less-aggressive tone on the trade war then I think we can see a deeper selloff.

I spoke with Kitco News on Friday and laid out how I was thinking:

Adam Button, head of currency strategy at Forexlive.com, said it’s tough not to be bullish on gold these days, but the de-escalation between the United States and China has the potential to sap the yellow metal’s momentum.

“The meeting this weekend is high stakes,” he said. “People are saying 50%, then Trump’s saying 80% today. We’ve built in some expectation of lower tariffs between China and the U.S., and it’s tough to judge how much is priced in and what might be the effect. If we come out of the weekend at 50%, I think we’re going to see gold sell off and we’ll see the riskier assets continue [higher].”

“I don’t think 50% would be the end goal, but it would be pretty rapid progress and a nice sign for both sides.”

Button said that gold is acting as the best financial barometer of the state of global trade these days. “Gold is clearly now finding itself as a trade on global trade, a ‘trade-war-on/trade-war-off’ asset,” he said. “For the week ahead, if China tariffs come down, if U.S. tariffs come down… I think that you don’t have a meeting without a plan to offer something, so they’ve both ratcheted down a little bit. I think any progress in that direction is negative for gold for the week ahead.”

“I would say gold looks to be carving out a range at the top end,” Button added. “If you pull back, gold went from $2,500 to $3,500 in a straight line, and now it’s consolidating in a $300 range at the top without a really big pullback. This is the best the bulls could hope for. It was nice to talk about $4,000 or $10,000 or whatever, but if gold can spend a month or two right around these levels, that’s bullish long term.”

This article was written by Adam Button at www.forexlive.com.