Gold under pressure to critical support on hopes for trade war break-through

Gold prices have dropped in recent trade, falling from a high of $1,550.38 to a low of $1,525.34 as risk appetite in markets continue to recover, squeezing around 0.80% out of gold's performance on the day. The move is a significant chunk out of which had propelled gold prices higher in its rally earlier this month. Gold is on the verge of a 23.6% retracement which level stands around 1519 - A key level of support. 

Intermarket analysis

Looking at the intermarket influences, we have US stocks on the bid, with the benchmarks up over 1% following headlines that Beijing said that it wouldn’t retaliate against the latest tariff increases and that further escalation of the trade war wouldn’t help the U.S., China, nor the global economy.

The &P 500 and DJIA had each gained 1.3% shortly after midday, while the Nasdaq Composite was up 1.5%. The 10-year bond price is digging its way up from multi-month lows and is currently climbing at a rate of 3.59% at the time of writing - However, when looking at the charts, there is a bearish bias and any further escalation of trade wars or recessionary talk could tip yields over the edge and send the 10-year to break below the 2015 lows which would be highly positive for gold prices.  

Interestingly, the Dollar's negative correlation to gold is also weighing, but the consensus is that the Dollar could well start to attract safe-haven flows which could result in a loser correlation. Today, the DXY is trading +0.29% higher. Finally, USD/JPY is higher by 0.43% and is extending yesterday's recovery and the recent low of 104.44, currently trading at 106.56.

Gold levels

As mentioned, gold is on course for a 23.6% retracement of the Aug. 1 lows to recent swing highs. On a break of that support level, bears will look to the 38.2% Fibo of the same range which has been a prior level of support. The 50% comes in at 1478 which was also a level of support on the 13 Aug volatility and downside spike. The 61.8% retracement at 1460 guards the 19 July swing highs at 1452.93.  However, while holding above the 1,520-1,525 zone, bulls are still in the running for a test a break of 1,558 to open 1,590, the 127.2% Fibo target area.