Gold prices down 1% on profit-taking, testing key short-term support

Gold prices are trading more than 1% lower on the day as the price action approaches the key short-term support around the $1700 mark. Two weeks ago, the price of yellow metal reached its highest levels since 2012.

Fundamental analysis: Profit taking pushes prices lower

Gold prices have lost around 2% in the past two days, most likely on some profit-taking activities from the early investors. Prior to this pullback, gold prices hit a 7-year high in May above $1760. 

“Every fundamental signal for gold was bullish earlier [Tuesday]. The sudden reversal is contrarian and profit taking. Gold has been steady through protests turning into riots around the country, U.S.-China tensions are still rising, not getting better,” said Jeff Wright, executive vice president of GoldMining Inc.

Still, investors seem to be cautious about a deeper pullback given the situation in the United States with riots and tensions with China. 

“There are growing concerns that the U.S.-China Phase One trade deal is about to get ripped-off,” said Edward Moya, a senior market analyst at broker OANDA.

It was reported earlier that China ordered its state-owned firms to halt purchases of pork from the major U.S. farms, in a retaliation move after Trump said it would eliminate special treatment for Hong Kong.

Technical analysis: Gold prices approaching short-term support

The pullback is extending as gold prices are now approaching the key short-term support. This trend line is connecting the higher lows with the sellers now threatening to end this series and push prices lower. 

“The yellow metal sees support near the $1,725 per ounce, even though the buyers lose appetite approaching the $1,750 mark on uncertainty regarding a renewed risk selloff despite unpromising news from the U.S., China front,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

Another important horizontal support is located at $1700, making this level extremely important in the short-term. We may also see new buyers of Gold coming in to defend this level. A break below this confluence of support is likely to open the door for a move towards $1645.

Summary

Gold prices are trading more than 1% lower on the day as short-term and early investors collect their profits. Gold is likely to stay bid amid the increased U.S. – China tensions and the riots in the United States.