Head-shoulder in Gold seems to be resolved for now

By Admiral Markets

Source: Economic Events May 17, 2019 – Admiral Markets’ Forex Calendar

It seems as if the Head-shoulder formation we saw in Gold has passed, for now. This comes after the trade war between the US and China escalated to new heights over the last few days.

With China to raise tariffs on $60 billion of US goods beginning June 1, stopping the purchase of US agricultural products and energy, reducing Boeing orders, restricting US service trade with China, and, most significantly, discussing the possibility of dumping US Treasuries – the US dollar saw some heavy selling, while Gold pushed back towards 1,300 USD.

This resulted out of the fact that market participants see a new, increased chance of the Fed electing to cut rates by December of this year, with a probability of over 70% according to the Fed Watch Tool.

Now that US president Trump is postponing auto tariffs on the EU, it becomes clear that he expects the conflict with China to continue, without a sensible trade deal anytime soon.

While the head-shoulder formation is still technically in play as long as we trade below 1,310 USD, it seems to be only a matter of time until the risk-aversion of market participants pushes Gold towards, then above that level.

An initial fundamental driver could be found in today’s Uni Michigan Consumer Sentiment: after we saw a revision higher to 97.2 from a preliminary 96.9 in April, a disappointment today could push the precious metal above 1,300 USD.

Technically, on the downside the picture stays the same as it has been in recent days: if we break below 1,266 USD, further losses in Gold are likely, and a first projected target can be found around 1,230/235 USD. But such a scenario needs to play out before we push back above 1,310, which is, as already mentioned, unlikely, given the current bias.

Source: Admiral Markets MT5 with MT5-SE Add-on USD/CAD chart (between February 14, 2018, to May 16, 2019). Accessed: May 16, 2019 at 10:00pm GMT – Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2014, the value of Gold fell by 1.7%, in 2015, it fell by 10.4%, in 2016, it increased by 8.1%, in 2017, it increased by 13.1%, in 2018, it fell by 1.6%, meaning that after five years, it was up by 6.4%.

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