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James Hyerczyk
Comex Gold
Comex Gold

Gold futures are under pressure on Tuesday with sellers seemingly picking up where they left off on Friday. The market is now down for the week and if the downside momentum continues, could challenge the short-term bottom at $1278.10. If this price level fails then prices could plunge into the next target at $1268.50.

At 1018 GMT, February Comex gold is trading $1283.60, down $6.30 or -0.49%.

The same factors that pressured gold enough on Friday to trigger a potentially bearish closing price reversal top are driving the market lower today – rising Treasury yields, increased demand for higher risk assets and hopes that the current trade negotiations between the United States and China bring an end to the trade dispute before new tariffs are likely to kick in on March 1.

The stronger U.S. Dollar is also contributing to today’s early weakness. It may be responding to technically oversold conditions and the higher Treasury yields. The U.S. Dollar is also trading higher against a basket of major currencies.

Forecast

Gold could become a very tricky market to trade over the near-term because of conflicting fundamentals. On one hand, you have a group of traders who believe that the Fed’s new dovish tone will result in a weaker U.S. Dollar. A weaker Greenback tends to make dollar-denominated gold a more desirable investment. On the other hand, rising Treasury yields and increased demand for risky assets will make gold a less-desirable asset because the precious metal doesn’t pay interest or a dividend.

Furthermore, there is the question about gold’s role as a safe-haven asset during the US-China trade dispute. Today, investors are expressing optimism that the current talks between the two economic powerhouses will yield enough fruit to bring a faster-than-expected end to the trade spat. However, if the two sides walk away from the discussions without making any headway toward a resolution then gold could spike higher on renewed safe-haven demand.

On the data front, in the U.S., the NFIB Small Business Index came in higher than the estimate at 104.40. This is a positive development for the economy.

At 1500 GMT, traders will get the opportunity to react to the latest JOLTS Job Openings report. It is expected to come in basically unchanged at 7.07 million. At 2000 GMT, the Consumer Credit report is expected to come in at 17.3 billion, down from 25.4 billion.

It’s not too early to start preparing for Wednesday’s Fed speakers and the release of the FOMC Meeting Minutes. On Monday, Federal Reserve Bank of Atlanta President Raphael Bostic said the U.S. central bank should only raise interest rates once this year, but keep going with its plan to gradually shrink its balance sheet.

This is one of those conflicting fundamentals. Raising rates only once this year means fewer rate hikes than the Fed projected in its December monetary policy statement. This is potentially bullish for gold. However, continuing to gradually shrink its balance sheet is potentially bearish for gold.

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