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Gold has the opportunity for a small correction.

On Tuesday, gold continued to move down, being under strong pressure  by the dollar and the situation on the stock markets.

The focus of the stock market yesterday was on news related to the provision of a temporary license to the Chinese company Huawei, until August 19, to operate in the United States. Investors felt that some softening of the position of the American side to the Chinese corporation would reduce the sharply increased tensions between the United States and China. Therefore, during the day, the market saw a fairly high demand for risky assets, which is always a strong negative factor for gold.

The US dollar traded in different directions yesterday, against the background of the publication of weak economic statistics, but at the end of the trading day it was able to win back all the losses due to the weakening of other G7 currencies. For gold, which is denominated in US currency, this is a bearish signal.

Today, the market situation has changed somewhat. Yesterday’s investor optimism was leveled by reports that the White House is considering the introduction of restrictive measures against 5 Chinese companies that are producing video surveillance systems. Investors fear that these actions could lead to another escalation of the trade conflict between official Beijing and Washington. Therefore, defensive assets, including gold, can today receive support against the background of a decline in investor risk appetite.

The US dollar may also be under pressure during the day, waiting for the publication of the minutes of the last FOMC meeting. Therefore, in the first half of the day, gold has very good chances of forming a corrective movement and restoring some of the positions lost yesterday.

On the chart, the situation develops in accordance with our expectations. Yesterday a rather important support level of 1270.00 was tested, from which the rolling back movement is now developing. However, local correction is not enough to form a global reversal, therefore, in the medium term, we can expect a continuation of the bearish trend and the breakdown of the level of 1270.00 from top to bottom.

Resistance Levels: 1279.50, 1289.00, 1300.00;

Support levels: 1270.00, 1265.00, 1260.00.

The main scenario - retest level 1279.50 and turn down.

The alternative scenario is the further development of the downward movement from current levels.

Despite a slight improvement in the fundamental background, gold is still under heavy pressure, which is confirmed by the situation on the chart. Therefore, a correctional pullback should be used as a good opportunity to open short positions. The most attractive entry point is still at 1279.50.

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