Hedge continues to fall! Gold just fell through 1540 and will soon fall to 1520?

International spot gold was trading at $1,537.40 an ounce in early Asian trading on Tuesday. Affected by the market risk aversion, the last session of the gold price retreated to the negative line to close down. Gold extended its slide to $1535.79 an ounce, down more than $13 since the session’s high, and maintained its losses after the news that the U.S. was withdrawing its designation of China as a “currency manipulator” cooled risk aversion further.

The US has withdrawn its “currency manipulator” designation against China, citing concerns that the dollar is “overvalued”

The US Treasury officially dropped its decision to label China a currency manipulator last year on Monday, in what was seen as another sign of a thaw in us-china relations.

“The Treasury has decided that China should no longer be listed as a currency manipulator at this time,” the Treasury said in its semi-annual report on currency intervention.

The US Treasury said the first phase of the trade deal, to be signed this week, contained enforceable Chinese commitments not to devalue the renminbi and not to set exchange rate targets for competitive purposes.

China is also said to have agreed to release information on exchange rates and external payments.

The US Treasury Department reported that it had labeled China a currency manipulator after it “took concrete steps” to devalue the renminbi this summer.

The Treasury report concluded that the exchange rate policies of 10 countries needed to be closely watched, but that none of the major U.S. trading partners met the criteria set by two foreign exchange manipulation laws passed in 1988 or 2015.

Countries worth examining are China, Germany, Ireland, Italy, Japan, South Korea, Malaysia, Singapore, Switzerland, and Vietnam.

The U.S. Treasury said the real dollar is still 8 percent above its 20-year average and continued dollar strength could exacerbate persistent trade and current account imbalances. The dollar’s continued strength is “worrying”, based on the international monetary fund’s judgment that it is “overvalued” on a basis of real efficiency.

The report notes that despite President trump’s efforts to reduce the US trade deficit, the deficit in non-oil products has risen to an all-time high of more than 4 percent of GDP.

Meanwhile, the U.S. Treasury Department is calling on Germany, the Netherlands, and South Korea to use some of their fiscal space for massive growth-boosting stimulus policies.

Market analysts said risk aversion had fallen further after theUSs dropped its designation of China as a currency manipulator. That, combined with a looming trade deal between the U.S. and China and signs of a thaw in tensions in the Middle East, has lifted risk sentiment, dampening safe-haven demand for gold.

Bart Melek, head of the commodity strategy at TD Securities, said the risk of rising geopolitical tensions was removed and gold was less needed to strengthen the portfolio.

Gold holdings at the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell 0.9 percent on Friday to 874.52 tonnes, the lowest level since September 16, reflecting a decline in investor appetite for the precious metal

The US house of representatives is heading for a crucial vote

On Sunday, House Speaker Nancy Pelosi said House Democrats will vote on Tuesday on when to formally introduce articles of impeachment to the senate.

Pelosi stressed that republicans in the senate would pay a political price if they refused to call new witnesses in the impeachment trial.

House Speaker Nancy Pelosi said on Friday that she would direct the house of representatives to send articles of impeachment to the Senate this week.

Earlier, Pelosi repeatedly delayed plans to introduce articles of impeachment for President Donald Trump after failing to reach an agreement with the senate on the terms of his impeachment trial.

But pressure is mounting on Ms. Pelosi to file articles of impeachment, not only from Republicans but also from Democrats.

Before the articles can be submitted, the house still has to vote on the names of the administrators or members of the house who will act as prosecutors in the Senate trial of the President.

On December 8, 2019, the US house of representatives passed two articles of impeachment against President Trump, namely “abuse of power” and “obstruction of congressional investigation”.

On Jan. 11, Trump accused Pelosi and the Democrats, reiterating that democratic hearings were “unfair and biased” and “have no effect other than to prove my complete innocence.” Mr. Trump also repeated his claim that ms Pelosi would be “the worst speaker of the house in history”.

In a senate trial, if more than a two-thirds majority finds President trump guilty, he will be fired and vice President pence will take over. But if no more than two-thirds of lawmakers believe he is guilty, he will be fully pardoned and remain in office.

In the current senate, republicans hold 53 seats, Democrats 45 and independents two. With the vast majority of Republicans saying they support Mr. Trump, the chances of him being impeached from office are slim.

If there is another political surprise in the United States, market sentiment could change again and gold could be volatile.

Gold outlook

“Gold prices will remain vulnerable but could move lower in the interim, with a break below $1,540 likely to trigger a pullback to $1,520,” Craig Erlam, an analyst at OANDA, said in a note.

David Song, the currency strategist at DailyFX.com, said in a note on Monday that as geopolitical tensions ease, the gold market may be ripe for technical profit-taking as short-term momentum begins to shift.

“The relative strength index is likely to trigger textbook selling signals in the coming days as volatility indicators struggle to hold on to overbought territory,” Song said in a note. After gold failed to close above $1,591, $1,509 was the key support level.”

Carsten Menke, an analyst at Julius Baer, said: “We are a little bit caught up in the details and it will be interesting to see if there are any specific guidelines on the details of the first phase agreement. In addition, the news that China and the United States are going to hold a semi-annual meeting to discuss trade issues, I think the market didn’t expect that, could put pressure on gold.”

Todd Horwitz, the chief market strategist at BubbaTrading.com, wrote that while we are bullish on gold and will continue to be so until our algorithms turn bearish, we believe in the chart that the high is in place. Gold for April and silver for the march will be tested at $1,500 and $17.80 respectively. We are very close to turning short of the market.

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