Gold prices dropped on Friday, heading under $3,250 following a short-lived comeback earlier in the week. Today, positive market sentiment is at high point. This optimism is based on realizations that a trade war between the U.S. and China seems less likely to escalate further.
Or simply as described on the Trade of Patience Thursday, gold’s melt-up began with prices correcting and closing back above $3,300. This bullish trend failed to hold as buying pressure relaxed, resulting in a selloff. Market analysts noted that the improved mood among investors contributed to bearish pressure on gold, indicating a shift in focus from safe-haven assets to riskier investments.
Recent statements from U.S. President Donald Trump indicate that talks with China will resume in the near future. These actions have played into a growing wave of optimism among market participants. Investors are abuzz with renewed hope a resolution is at hand. As they’ve looked for prospects within equities and other assets, prices for gold have started to pull back.
Then on Friday, the value of the precious metal plummeted. With shifting market fundamentals, traders increased the pressure on the sellside as they re-evaluated their sizeable short positions. That change in sentiment is almost certainly due to recent strong economic signals suggesting a return to economic stability. As such, investors are fleeing gold, typically a safe-haven asset during times of geopolitical turmoil.
Indeed, market analysts have noted that throughout recent weeks, gold’s performance has mirrored investor sentiment on the state of global trade relations. While gold has dipped recently, many traders are believing in a long-term bullish outlook for gold. Bears counter that bulls have all too often held sway over the markets. This augment will persist as long as gold remains above the key $3,300 level.
The current consolidation phase that gold is experiencing is part of a growing New Normal in which asset prices move in well-defined and recognizable ranges. Sharp immediate bearish pressures continue to be at play in this context. Should geopolitical tensions or economic uncertainties return, longer-term trends might once again prove supportive of upward movement.