July was certainly another rough and rocky trading month for zero-yielding gold. The yellow metal has struggled to register any meaningful recovery in recent weeks, despite global trade tension weighing on risk sentiment.

For those who may be wondering why gold continues to be heavily depressed and unloved regardless of the growing risk aversion, the answer can be found in the dollar’s performance. It is becoming increasingly clear that an appreciating dollar and expectations of higher U.S. interest rates remain gold’s biggest nemesis, and this continues to be reflected in the bearish price action.

There is a strong possibility that gold’s trajectory is not only heavily influenced by king dollar’s performance, but also Fed rate hike expectations and global trade developments during the third trading quarter of 2018. Although trade tensions may stimulate risk aversion and boost appetite for safe-haven assets like gold, any upside gains are likely to be threatened by a broadly stronger dollar.

Interestingly, since the start of Q2, the yellow metal has exhibited extreme levels of sensitivity to the negative correlation against the dollar. With market expectations heightened over higher U.S. interest rates this year amid robust domestic economic data and rising inflation, this could offer nothing but pain to gold.

It is also worth noting that the recent rise in inflation could somewhat elevate the yellow metal which is seen as an effective inflation hedge, however, gains altogether still remain obstructed by speculation over the Fed raising interest rates gradually.

While a valid argument for those who expect gold to rebound may be based around escalating trade tensions negatively impacting global stability, an appreciating dollar has the ability to sabotage any meaningful upside gains. Although investors across the globe may be forced to make a mad rush to safety in the event of a full-blown trade war, the question is whether such a move will be reflected in price action. From a fundamental perspective, dollar strength and U.S. rate hike expectations are seen as major themes which could send the precious metal towards the psychological $1200 level.

The technical picture for gold remains as bearish as ever on the monthly and weekly timeframes. There have been consistently lower lows and lower highs on the weekly charts while the Moving Average Convergence Divergence (MACD) trades to the downside. Sustained weakness below the $1245 level could fuel market speculation of gold challenging the psychological $1200 level in the medium term.

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