Gold holds trendline support as the markets mulls geopolitical risks

The price of gold on Tuesday is failing on upside attempts while supported by the 4-hour moving average and along with trendline support. At the time of writing, gold is trading at $1475.36 having travelled in a narrow range of between $1474.27 and $1480.58 as it consolidates the recent trade and Brexit headlines.

On the geopolitical front, which has dominated markets for all of 2019, we have finally started to see worst-case scenarios dissipate over the horizon which has capped gold this month, so far. Firstly, the US and China are moving closer to inking a so-called 'phase-one' trade deal which addresses some bulky issues that have kept Beijing and Washington at odds in a trade war for almost two-years. Then, across the pond, the UK elections finally broke the deadlock in UK politics and opened up avenues for a Brexit deal which, underpinning risk appetite and consequently stripping some of gold's safe-haven premium. 

A case for bullish gold

However, the long-gold trade is not dead and buried. Cracks in both the Brexit road-map and the US/Sino trade deal are already showing. For instance, while the bulk of the Sino/US trade-deal addresses tariffs, there are still some crucial areas which are all too vague.  If China hardliners step in during their legal scrutiny process before the deal is signed and took over the negotiations, they could renege on portions of a deal, provoking the US to retaliate and reinstate tariffs. As such, a phase one deal is on a razors edge.  As far as Brexit, risks of a hard Brexit have re-emerged this week as PM Boris Johnson calls for legislation to prevent an extension to the transition phase, intent on leaving the EU before 2021 – more on that here.

"Notwithstanding, gold has maintained its luster because the Fed's reaction function remains asymmetric, which suggests they will either cut rates further if growth disappoints or stay the course if growth recovers, ultimately pressuring real rates further in either case," analysts at TD Securities argued. "This lends strength to the view that gold will continue to bounce higher through 2020. That being said, we don't expect much CTA flow into year-end in the precious metals complex."

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