Commodity Market: Gold retreats 2% on Tuesday on profit taking and firm dollar, losses may be capped by worsening US-China relations

Spot Gold retreated nearly 2% in Europe on Tuesday and fell below the $2,000 mark for the first time since August 4th, as market players took profits following the haven metal’s recent rally. The US Dollar was holding gains against major peers on hopes of a deal on US fiscal stimulus, while US bond yields bounced off multi-month lows.

“A stronger dollar and favorable risk sentiment are weighing on gold. Prices are undergoing a period of consolidation after rising more than 14% in three weeks,” DailyFx strategist Margaret Yang said.

However, the longer-term bullish trend for the yellow metal is still seen intact, with current losses probably capped by worsening diplomatic relations between Beijing and Washington.

Earlier this week Chinese authorities imposed sanctions on 11 US citizens, including members of the Republican Party, in response to US sanctions on officials from China and Hong Kong. At the same time, US Treasury Secretary Steven Mnuchin said that corporate entities from China and elsewhere that were not compliant with accounting standards would be delisted from US stock exchanges at the end of next year.

“Gold trade attracted a lot of fast money last week and a washout of speculative long positioning sets gold up for a more balanced rally going forward,” Jeffrey Halley, a senior market analyst at OANDA, said.

As of 8:48 GMT on Tuesday Spot Gold was retreating 1.97% to trade at $1,987.76 per troy ounce, after earlier touching an intraday low of $1,983.61, or a price level not seen since August 4th ($1,966.86). The precious metal advanced 10.95% in July, while marking its fourth consecutive month of gains and also the best monthly performance since January 2012. It rose another 3.00% during the first week of August, while its year-to-date gain was over 31%.

Meanwhile, Gold futures for delivery in October were losing 1.76% on the day to trade at $1,994.60 per troy ounce, while Silver futures for delivery in September were down 3.70% to trade at $28.175 per troy ounce.

The US Dollar Index, which reflects the relative strength of the greenback against a basket of six other major currencies, was inching down 0.07% on Tuesday to 93.55, while being not far from last week’s 26 1/2-month lows.

Today Gold traders will be paying attention to the monthly report on US Producer Price Index. Annual producer prices probably decreased 0.6% in July, according to market consensus, slowing down from a 0.8% drop in June.

Meanwhile, near-term investor interest rate expectations were without change. According to CME’s FedWatch Tool, as of August 11th, investors saw a 100.0% chance of the Federal Reserve keeping borrowing costs at the current 0%-0.25% level at its policy meeting on September 15th-16th, or unchanged compared to August 10th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – $2,032.32
R1 – $2,045.34
R2 – $2,062.94
R3 – $2,075.96
R4 – $2,088.98

S1 – $2,014.73
S2 – $2,001.71
S3 – $1,984.11
S4 – $1,966.52