Gold Price Forecast: Three reasons for the comeback and levels to watch

  • US-Sino talks seemed doomed to fail before they begin.
  • Weak US data and dovish remarks from a Fed hawk raise the chances of a rate cut.
  • Brexit negotiations are breaking down following acrimonious statements, adding to weak sentiment.

The precious metal becomes even dearer in times of trouble – and troubles are brewing. After a few negative sessions, Gold is on the rise once again, topping $1,500.

1) US-Sino talks seem doomed to fail

Chinese Vice Premier Liu He leads a delegation to Washington for high-level trade talks. However, as the South China Morning Post stresses, He has been stripped of his title "special envoy" of President Xi Jinping. Moreover, they are considering cutting the trip short. 

The news joins reports that China wants to limit the scope of the talks to topics both countries can agree on – averting the issues that the US wants to resolve. 

And in Washington, the US administration announced the blacklisting of 28 Chinese firms accused of violations of human rights. Moreover, plans to curb Chinese financial investment and a ban of the NBA and the Houston Rockets in China also adds to tensions. 

Stock markets are under pressure and the risk-off sentiment pushes traders to the safety of the yellow metal.

2) PPI and Rosengren

Future US economic developments depend on China, but also on domestic developments. Core Producer Price Index (PPI) rose by only 2% in September, below 2.3% expected. The weakness in factory gate inflation may be reflected in the more important Consumer Price Index (CPI) due out on Thursday. 

Also, Eric Rosengren, President of the Boston branch of the Federal Reserve, acknowledged there are signs of weakness. Rosengren had been bullish on the economy and voted against the Fed's recent rates. His change of tone is weighing on sentiment as well.

3) Brexit talks breaking down

UK Prime Minister Boris Johnson and German Chancellor Angela Merkel have had an unpleasant telephone conversation earlier today. According to some accounts, Merkel laid down an uncompromising position on Northern Ireland and pushed Britain to say that reaching a deal is "impossible."

The report has raised some eyebrows, it is clear that negotiations are not proceeding toward an accord. European Commission President Donald Tusk has responded angrily by blaming the UK for playing a "blame game."

While those who took short positions on the pound are the greatest beneficiaries, Gold is also benefitting. A disorderly Brexit may reverberate well beyond the borders of the old continent. 

Overall, dark clouds are gathering and safe-haven assets are gaining ground.

XAU/USD levels to watch

Gold technical analysis October 8 2019

The next hurdle for Gold is at $1,511, which capped the price of the precious metal in early October. the line also converges with the 200 Simple Moving Average. Next, we find $1,519, which is October's high. It is followed by $1,526, and $1,534. 

Support awaits at $1,496, which was a swing low earlier this week. It is followed by $1,488, $1,485 and $1,455.

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