Gold Price Analysis: Gold moves higher as US-China relations take a sour turn

Fundamental backdrop

Headlines over the weekend and leading into the trading week have focused on the COVID-19 blame game. The US now say they have evidence that the coronavirus originated in China at the Wuhan located Laboratory for research into diseases. US President stated:

We’re going to be giving a very strong report as to exactly what we think happened. And I think it will be very conclusive

Many US analysts believe Trump is taking aim at China due to the US not acting swiftly enough in tackling the pandemic. Remember, the US elections take place this summer and Trump needs to be on the offensive to win votes. 

Stock markets have also underperformed today as the Dow (-0.69%) and S&P (-0.33%) trade lower but the Nasdaq is 0.41% to the good. Gold is trading higher but the opportunity could really kick in later down the line depending on how much fuss the US kick up about the origination on the coronavirus. Trump has already suggested that he could use tariffs again as his main weapon against the Chinese and we all know what happened to stock markets the last time that happened.

One other headline came down the wires today to keep a note of. The US said they expect to start buying eligible ETF's as early as May. Does that mean the Fed will now become hedge funds like the SNB and BoJ?

Initially, the funds will be focused on corporate debt but later down the line who knows maybe they will buy ETF funds that hold stocks too. Investors including some of Wall Street's biggest names have piled into on ETF's in anticipation of the event but the Fed have insisted they will not overpay. 

Technical picture

There is quite a large consolidation pattern on the 4-hour gold chart below. The price has moved into a wedge-like formation and it will be interesting to see if the bulls can take out the pattern to the upside. The price waves are making lower highs and higher lows which shows a lack of commitment in either direction in the short term.

The magnetic level seems to the USD 1700 level at the moment. The price keeps bouncing off the psychological zone which is also very close to the 55 exponential moving average. There does not to be too much upside conviction but It seems that this could be a pause for another move later down the line. 

The downward pressure on the precious metal seems to be holding at the moment as the price pushed to the upside pretty fast and higher levels seemed to be exhausted. Something will have to give and at the moment the top of the pattern looks like it could be the most likely target. For support keep an eye on USD 1660.86 and resistance is at the wave high of USD 1747.82.

Additional levels