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Gold Traders Target Yearly-Highs as Trump Tariffs Risk Stock Market Selloff

Last Updated September 23, 2020 1:19 PM
Joseph Young
Last Updated September 23, 2020 1:19 PM
  • Gold price is showing signs of a short-term reversal on the weekly candle.
  • Strategists foresee bigger pullback in the U.S. stock market if new tariffs are introduced.
  • Traders are considering the possibility of gold moving to yearly highs if U.S.-China discussions reset.

The gold price has critically avoided a steep drop below a crucial support level at $1,450. In the short-term, warnings of a further stock market sell-off by strategists position the safe haven for a relief rally.

Market Yet to React to New Tariffs, Good For Gold

According to UBS director of floor operations Art Cashin, another correction could occur in the U.S. stock market  if new tariffs are introduced.

The market reacted to the possibility of 2019 ending without a deal between the U.S. and China. But, the market is unlikely to have considered the imposition of additional tariffs  in the past two days.

As geopolitical risks intensify, the gold price is already en route to reversing the 3.7% weekly drop in early November, when it slipped from $1,513 to $1,456.

As it breaks out of the tight range it has been in for nearly four weeks, traders are beginning to target 2019 highs at above $1,550.

Why Gold Struggled to Rebound Throughout November

For nearly a full month, the gold price showed signs of difficulty breaking above heavy resistance levels at above $1,470. Every attempt to close above the levels was met with a swift sell-off, creating an unfavorable range for traders.

gold price
Gold Price Surging Above $1,480 Signals Possibility of a Short-Term Reversal | Source: TradingView

The stagnancy of gold throughout November is mainly attributed to the market predominantly weighing towards the resolution of the dispute between the U.S. and China.

Most investors believed that it would be in the best interest  of President Donald Trump and President Xi Jinping to secure an accord after a bad few weeks for both nations based on economic data.

Very few analysts anticipated the ongoing discussions between the U.S. and China to essentially reset by the year’s end. As the unlikely scenario begins to play out, it could importantly improve the sentiment of gold heading into 2020.

Raymond James strategist Ed Mills said: 

This delay could be beneficial for both sides as it would likely see a decrease of Congressional attention on human rights issues given expected end of year actions on government funding, impeachment, and ultimately recess for the winter holidays, which could provide ample time to reset the U.S.-China relationship heading into 2020.

What Yearly Highs For Gold Would Mean For the Stock Market

When the gold price briefly touched $1,550 on August 26, talks between the U.S. and China seemed to be falling out of control . The sentiment around an agreement between the two sides was noticeably in decline.

At the time, China abruptly announced tariffs on U.S. goods and the White House said that President Trump regrets not imposing higher tariffs  on China.

Whether the tension between the two countries can hit the August peak to provide a strong enough foundation for gold to climb back to $1,550 remains to be seen.

Some believe that the additional tariffs will be the only potential driving factor that sends gold to yearly highs within the four weeks.