Gold prices set on the 127% Fibo extension target

Spot prices rallied to a high of $1,530.22 from a low of $1,493 on the day, ending 1.86% higher ahead of what is expected to be a bullish open in Sydney today and for the ahead.

On Friday, China announced retaliatory tariffs on USD75 billion of US imports on Friday, effective 1st September and 15th December - US autos will have a 25% tariff imposed from 15 December, and other tariffs are 5-10%.

Then, President Trump stated that the 10% levy on USD300 billion of Chinese goods would be raised to 15% and the existing 25% levy on USD250 billion of Chinese goods would lift to 30%. Trump also urged US companies to pull out of China and produce in the US and there has been some talk of how he can legally force companies to stop trading with whichever country he chooses.  The entire story completely overshadowed the Jackson Hole symposium where the main event was Fed Chair Powell’s speech.

Powell: "Economy is in a good place and that the Fed will act appropriately ... " ...

Powell, as expected, gave a balanced assessment of monetary policy but repeated that there are significant risks to the economy from external economic developments and trade frictions. He noted that the economy is in a good place and that the Fed will act appropriately to maintain the expansion. Taken together with the tariff news, market pricing for US rate cuts increased slightly.

"At the same time, diverse views have been expressed by other Fed officials on the need for further US rate cuts," analysts at ANZ Bank explained:

"Regional Fed Presidents George, Harker, and Rosengren have voiced their resistance to lower interest rates, noting solid US data, financial stability risks, and the need for a long-term view. Meanwhile, Kaplan said he has an open mind about further action, and Bullard advocated for a 50bp cut at the upcoming meeting as an insurance cut. Market pricing is on the side of the dovish officials, with a full cut priced in for September and 100bp of Fed cuts priced in by mid-2020."

We now await the Sydney gold open and it is worth noting that gold futures rallied on Friday as well on China’s plan for retaliatory tariffs on U.S. goods. The December gold climbed by $29.10, or 1.9%, to settle at $1,537.60 on Comex as being the highest most-active contract settlement since April 2013 and prices were up 0.9%, following weekly gains in each of the past three weeks.

Gold levels

The market is a spike away from a breach of the 1535s. A break there guards a longer run higher with the first major stop on the map being the 127.2% Fibo target which is located around 1,560, guarding the Oct 2012 highs at 1795. On the downside, should there be some fundamental switch up, bears can target a 23.6% retracement to 1472 ahead of a 50% mean reversion to 1401.