The gold price has found some support around the $1200 dollar today after racking up heavy losses over the past 7 trading sessions and as long as this level holds, some say a rebound is in the making.
The main driver of gold’s losses over the past week has been doubts over a trade agreement between the US and China which could happen in November.
This sceptism has caused investors to move into the US dollar at the expense of gold on the back of predictions that the greenback will fly higher as a safe haven currency if the deal with China falls through.
“Gold has fallen in line with the U.S. dollar drive, meaning that the current rally in the greenback is not a reflection of a safe-haven spree from traders,” said Jameel Ahmad, global head of currency strategy and market research at FXTM
“This does weigh in line with the view that investors are piling up bullish dollar bets, which makes me more suspicious that this move has been encouraged by skepticism that a trade agreement with China can really be agreed in November.” He added.
Some analysts say however that even if a trade deal between China and the US becomes official, the US dollar will only benefit for a short time as the pact will cause inflation to spike and investors will start looking elsewhere to park their money and gold should benefit as a safe haven against rising prices.
Government spending is also likely to contribute to higher inflation.
“Deficit spending at some point is going to drive inflation higher and that will be reflected in commodity prices,” said Thomas Smeenk, CEO of Broadway Gold Mining.
“The strength we have seen in the U.S. dollar isn’t sustainable. At some point, we have to get back to fundamentals,” he added.
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