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Gold rises towards critical juncture amid heightened market risk, weak dollar

Despite earlier signs of a potential recovery, the US dollar continued to fall on Monday amid generally lackluster US economic data in recent weeks and a Federal Reserve that has become even more divided and dovish than usual as of the last FOMC meeting. This sustained pressure on the dollar comes just as geopolitical concerns have risen recently, due in large part to the overhanging threat of North Korea’s nuclear capabilities and the ongoing troubles and controversies plaguing US President Trump and his administration.

As the prototypical safe-haven asset, dollar-denominated gold has been boosted sharply by this combination of rising geopolitical concerns and a heavily weakened US dollar. Late last week, the precious metal rose to hit a new 9-month peak at the highly significant $1300 psychological resistance level before pulling back from that resistance. On Monday, the price of gold resumed its upward march as the dollar took yet another hit and market risk concerns remained elevated despite a relative stabilization in equity markets.

From a slightly longer-term perspective, gold has been trading within a wide-range since February, bounded to the downside by the $1200 level and to the upside by the $1300 level. During the course of this range-trading, price has traversed the range multiple times in a rather clear pattern. Since early July, this pattern has continued with a well-formed rise from just above $1200 to its current level just below $1300.

With any continuation of heightened geopolitical risk concerns and Fed-driven pressure on the US dollar, the gold range could potentially be broken to the upside. In this event, a range breakout could result in a medium-term move up towards the $1350 level. If the current range resistance is respected however, as it has been for the past four months, the key price event to watch for would be a breakdown below the current intra-range uptrend line, which could produce a near-term pullback towards the key $1250 support level.

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