Gold prices enjoyed a rebound yesterday, after falling sharply earlier in the week. As the difficulty of passing Trump's tax proposal in Congress dawns upon markets, the dollar has sold off accordingly - leading to gold strength. Looking at bonds, interest rates rose yesterday but failed to dent the precious metal. Gold prices typically rise and fall inversely to real interest rates.
Our short-term and medium-term outlook on gold remains bearish, despite yesterday's rebound. While North Korea remains in the background, tensions have fallen thanks to conciliatory remarks from Trump. The President recently thanked China for its efforts in reigning in North Korea - China has instructed its banks to end all North Korean relationships while banning all North Korean business activity in the country.
After its most recent peak close to $1,310, gold is now well under $1,300. The precious metal is currently trading close to $1,287.
After falling below $1,300 on Yellen's comments on September 26, gold is back to bearish. The Federal Reserve Chair reiterated the need to continue hiking rates, despite uncertainty regarding the future path of inflation. This was followed by the revelation of Trump's tax plan on September 27, which has led to further dollar strength (and gold weakness). Gold previously entered overbought conditions in early September, and has now re-entered normal trading conditions. This is based on various technical indicators on a daily chart of the precious metal.
Looking at the medium term picture, we remain bearish on gold in the medium term. Gold is currently correcting, having entered overbought conditions in early September. The recent bout has accelerated following the Federal Reserve's suggestion that future interest rate hikes are likely and Donald Trump's tax plan. Today, prices have re-entered normal trading conditions when looking at various technical indicators, and gold no longer looks overbought.