Gold Elliott wave analysis after US-China trade agreement

Gold trades around 1550 as the US and China agreed on phase one of the trade deal. The following Gold Elliott wave analysis looks at the technical side.

January 17, 2020 | AtoZ Markets – The yellow metal recovered from 1536 after a massive drop since the second week of the year. The market had two major risk concerns in January. First was the US-China trade deal deadline and the second which came so wildly was the US-Iran crises. The two have now been resolved at least for now and market risk is back. Gold took a hit as a result. The precious commodity quickly dropped from 1612 to 1538 in less than three days. That was the biggest dip since November. Stock markets hit new record highs.

The signing of the US-China ‘phase one’ trade deal is expected to boost business confidence. The market atmosphere will encourage a better risk appetite as many of the geopolitical tensions that ravaged 2019 have been resolved albeit temporarily. The US and China signed the agreement on January 15. The deal includes China importing more of US goods to balance the trade deficit between the two nations. In addition, China pledged to strengthen the protection of US intellectual properties. The two countries also agreed to halt forced currency devaluation aimed at gaining a competitive advantage over each other.

However, there have been arguments concerning the loopholes in this agreement. The ‘American first’ approach deliberately enshrined in this deal will definitely affect many of the markets that depend on exports to China. The extra $200 billion worth of US imports between 2020 and 2021 will drop exports income for Germany and other top China’s partners. This will potentially affect the current trade deal between the EU and US. In addition, the current agreement does not spell the end of the trade war – its just a truce. The second phase might bring more drama. So, the war is not completely over. However, stability is expected in the first quarter of 2020.

Gold Elliott wave analysis

From the Elliott wave approach, the dip from 1612 was completing the wave 4 of the impulse wave rally to complete wave (5). However, the correction was very sharp and deeper than expected. In the last update, we used the chart below (Charting tools from TradingView).

Wave 4 seems to have ended just a bit below the 38.2% Fibonacci retracement level as the new chart below shows. Wave 5 should break above 1612 if this wave could is validated by the market.

Gold Elliott wave analysis

On the other hand, wave 4 still has a room for a lower dip considering the structure of the current dip from 1612. If wave 4 has ended, the market will have to surge above 1565 to 1585 in an ‘impulsive’ manner.

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