Gold Drifts Lower as Trade Deal Hopes Rise

Gold prices inched lower in early trading on Wednesday after comments from US President Donald Trump boosted expectations of a trade deal with China and US stocks closed at record highs.

On Tuesday, President Trump said that the United States and China are near to reaching an agreement on a ‘phase one’ trade deal. However, he also voiced Washington's support for protesters in Hong Kong, a sensitive point of discord between the superpowers. Speaking to reporters at the White House, Trump said:

"We're in the final throes of a very important deal, I guess you could say one of the most important deals in trade ever. It's going very well but at the same time we want to see it go well in Hong Kong."

The comments dampened demand for safe-haven assets such as gold and helped to lift US stock indexes to close at record highs.

Meanwhile, the current stance of the Federal Reserve is not helping gold prices. The Fed cut its benchmark short-term rate three times this year to a range of 1.5% to 1.75%. Lower interest rates are bullish for gold as they increase the appeal of non-interest yielding assets. However, Fed Chair Jerome Powell signaled last month that the Fed will now likely remain on hold unless the economy noticeably deteriorates.

At the news conference after the October FOMC meeting, Powell stated:

“We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook.”

In a speech to the Greater Providence (Rhode Island) Chamber of Commerce on Monday, Powell was upbeat in his outlook for the US economy. He also signaled that an interest rate hike in the near future is unlikely, due to low inflation.

Looking at the gold daily chart we can see that potential support lies below at the 38% Fibonacci retracement level of $1,446.