Gold bulls sulking on the cease-fire outcome and dialled down Fed cut expectations

Global markets were in "wait-and-see" mode ahead of the weekend's trade headline bonanza, where top-tier trade delegations gathered around the highly anticipated Trump-Xi meeting that went down on Saturday, resulting in a widely expected "trade cease-fire". 

However, while this has given a temporary boost to the greenback, providing nourishment in the not so dovish camp with respect to the Fed, there is still a long way to go before the uncertainty priced into gold's rally can be regarded as a full lown short. Gold prices have indeed tumbled, down on Monday in lat New York by 1.65% at the time of writing at $1,386 from a high of $1,406.40. At some point, the market will need to factor in that the uncertainty itself is going to be damaging to trade growth and that, in part, could encourage a decision from the Federal Reserve's to cut interest rates. 

Fed's economic forecasts were NOT dovish

However, on the flipside, the Fed is not exactly a done deal this month around, and the volatility that would come of such a surprise to the markets could actually be a bullish factor for gold on the longer term as it would risk longer-term credibility issues for the Fed and the Dollar. If the Fed's economic projections were anything to go by last meeting around, then it should not be all that much of a surprise if the Fed stays on hold this month. Gross Domestic Demand and Unemployment were revised higher while the long-run estimates of growth and Unemployment were unchanged. Core Inflation was revised downward, but only modestly - That's neutral on the projections, even perhaps mildly hawkish, rather than dovish. 

Nonfarm payrolls are the one to watch

In the same vein, this is going to be a crucial week for the lead in tot he Fed this month. We have a number of additional data releases including Nonfarm Payrolls at the end of the week. Casting minds back to the Chair Powell's press conference, he made a number of important references to the Fed's need to "see more" standpoint. The trade truce is a plus and the FOMC can use that as an excuse to keep their ammunition fully topped up by holding rates again this month. Powell also referenced to the weak May jobs report in which only 75,000 jobs were added during the month and noted that the Fed typically requires three to six months' worth of data to get a sense of the overall trend. If this week's data surprises to the upside, you can probably start to discount a Fed cut as soon as this month and that will certainly weigh on the price of gold - for the near term while the dollar continues to run higher on central bank divergences - Today's RBA will be a key focus in that respect, priced in for an additional rate cut of 25 basis points. 

Gold levels

Gold prices can target the 20-D EMA and then the 50% retracement of the April swing lows to late June swing highs around 1350. First, the 13 July 16 highs around the 382% retracement need to give. This is located at 1375. 1398/00 and 27 June spike low is a likely resistance on an upside correction.