Gold Kept Rising Despite a Weakening Fear on North Korea

Gold prices held on to their recent haven-driven gains last week with the precious metal up 2.3 percent to trade at 1287 ahead of the New York close on Friday, despite efforts from U.S. officials to tamp down fears of imminent nuclear war with North Korea. It hit tops on Friday since Jun. 8th, closed by 0.19 percent at $1288.11, while with some intraday volatilities.

The advance continues amid growing geopolitical tensions between the U.S. and North Korea with more hawkish voice on nuclear war by North Korean leader Kim Jong-Un. Nevertheless, two top U.S. national security officials sought to lower fears of this geopolitical risk by preparing to meet with South Korea’s leader. In a call with Trump on Saturday in Asia, Chinese President Xi Jinping called for all sides to maintain restraint and avoid inflammatory comments.

The latest reading on consumer price index in U.S. showed a below-forecast rise, lowering the possibilities for the central bank to stay on its tightening course for one more rate hike this year.  The less-than-expected CPI has boosted gains on gold prices, continuing to drive investors out of investing U.S. dollar, and attracting them in the gold market instead.

The Consumer Price Index rose 0.1 percent seasonally adjusted; rising 1.7 percent over the last 12 months, not seasonally adjusted, a Labor Department report showed Friday. More specially, the index for shelter, medical care and food rose in July, leading to the overall increase. The index for natural gas declined, while the electricity index rose and the gasoline index was unchanged.

Highlighting the economic data this week will be the July retail sales and the release of the minutes from the latest FOMC policy meeting. Weakening price index dragged the expectation for a December rate-hike to just a 30 percent chance that the central bank will deliver on its promise for a final 25bps hike this year. There is a general expectation that coming with falling interest rate expectation, rising geo-political tensions, along with weakness in broader risk assets weighting on sentiment, gold is likely to remain well-supported in the medium term.

Technically gold prices have signs to slow down its increase in face of a key resistance above found at Jun 6th’s highs of 1296.06, with an intraday trading at 1287.72 as of 12:16 pm in Sydney. In this spot, investors should keep a close eye on next few days’ performance. If it is successfully breaking to the resistance, a bullish market for gold prices could be seen in the near term; otherwise, it likely retreats to find near support at May 9th’s low of 1214.25.

Chart 1: XAUUSD Daily

A closer look at price action in 240-min chart shows prices attempt to approach the upper channel line, keeping gold within the ascending channel formation that we’ve tracking for weeks now. Any breakout of this channel will likely lead to a changing pattern afterwards.

Chart 2: XAUUSD 240-min