Gold Rallies And Stocks Sell Off As Trump Dashes Trade Hopes

New York (Dec 4)  Gold rallied sharply today as stocks sold off for the second straight day after Donald Trump raised fresh doubts over the US-China trade deal. The US President suggested the deal may have to wait until after the US election in November 2020. The news weighed heavily on risk-sensitive currency pairs such as the USD/JPY and EUR/JPY, as safe-havens Japanese yen and Swiss franc rallied alongside precious metals.

At the time of writing, though, gold had reached a key technical level around $1481. So, it remained to be seen whether the metal would be able to rally further, or head lower again. I would re-instate my short-term bullish bias on gold in the event this level breaks and we go above the bearish trend line around $1495. Long-term, I maintain my bullish view regardless of any further short-term weakness given THAT bullish breakout from a 6-year consolidation in the summer.

Meanwhile it is interesting to observe the breakdown in gold’s negative relationship with stocks over the past few years, as one can see in figure 2 below. Their divergence suggests gold has some catching up to do and/or stocks are due a correction. Alternatively, it could also imply that stocks can go higher but so too could gold. But over the past few years we haven’t seen many major corrections in the S&P 500. Thus, if stocks were to correct themselves going forward, then this surely could lead to elevated levels of safe-haven demand for gold. In other words, gold is likely to benefit more from a potential stock market correction than suffer from another rally.

Investing.com