Gold prices declined sharply on Monday as optimism surrounding US-China trade negotiations bolstered investor sentiment and the US dollar. The strengthening dollar, driven by positive developments in trade talks, has created a bearish environment for gold.
US-China Trade Developments Impact Gold
Gold (XAU/USD) dropped below the $3,354 mark, its 50-day Simple Moving Average (SMA), after officials from the US and China suggested substantial progress in resolving their trade disputes. According to Jigar Trivedi, Senior Commodity Analyst at Reliance Securities, the stronger dollar and the improving trade sentiment have put significant pressure on gold prices.
The US-China trade talks, held in Switzerland over the weekend, concluded with both sides expressing optimism about de-escalating tariff issues. Chinese Vice Premier He Lifeng announced that a joint statement would be released soon, which is expected to alleviate global recession concerns.
Dollar Strength Dampens Gold Appeal
The improvement in trade relations between the world’s two largest economies, coupled with a stronger US dollar, has reduced demand for safe-haven gold. Investor risk appetite has surged, driving a decline in the yellow metal’s value.
Technical Analysis: Bearish Trend with Potential for Short-Term Rebound
Gold is currently trading around $3,278 after breaking below the key support level of $3,354. This technical move is considered bearish, with immediate support at $3,270, the lower boundary of a descending triangle pattern. The Relative Strength Index (RSI) stands at 35.27, indicating that gold is oversold and could experience a short-term bounce.
Immediate resistance is seen at $3,300, followed by $3,354, the 50-day SMA. A close above $3,354 is needed to confirm a reversal of the downtrend. Until such a move occurs, the broader outlook remains bearish.
Key Levels to Watch
Immediate Support: $3,270
Next Support: $3,239
Immediate Resistance: $3,300
Major Resistance: $3,354 (50-day SMA)
Trade Setup: Cautious Approach Advised
Given the current market conditions, a cautious approach is recommended. Traders may consider selling gold below $3,300, with a target of $3,239. A stop-loss should be placed above $3,354 to manage risk, as a close above this level would invalidate the bearish outlook.
Sell Below: $3,300
Take Profit: $3,239
Stop Loss: $3,354
While a short-term rebound is possible, the overall trend remains bearish. Traders should also keep an eye on upcoming economic data, including US inflation numbers, for further market direction.
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