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James Hyerczyk
Comex Gold

Gold futures hit a three-month high on Wednesday, helped by another drop in the U.S. Dollar that drove up foreign demand for the dollar-denominated asset. Dovish comments from Fed Chairman Jerome Powell about the direction of Fed policy are also underpinning gold prices. Essentially, it’s not safe-haven demand that’s driving prices higher, but actually a weaker dollar. And the greenback is being pressured by expectations of lower interest rates.

At 11:30 GMT, August Comex gold futures are trading $1342.30, up $13.60 or +1.03%.

Treasury yields and equity markets are a little higher on Wednesday, suggesting an easing of tensions over the trade disputes between the United States and China, and the U.S. and Mexico. However, the U.S. Dollar is lower and this is having a greater influence on gold prices than trade worries. Basically, smart gold buyers have taken the emotion out of the market that is typically associated with “safe-haven” buying, and put their focus on lower interest rates and a cheaper U.S. Dollar.

If this is the case then prolonged weakness in the U.S. Dollar should provide solid support for a longer-term gold rally.

Gold was already trading higher on Tuesday when Federal Reserve Chairman Jerome Powell said the central bank is watching current economic developments and will do what it must to keep the near-record expansion going.

Powell began a speech Tuesday in Chicago by addressing “recent developments involving trade negotiations and other matters.”

“We do not know how or when these issues will be resolved,” he said in prepared remarks. “We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective.”

Daily Forecast

We’re expecting gold to remain underpinned as long as the U.S. Dollar remains under pressure. At this time, the prospect of lower U.S. rates is making the dollar a less-desirable investment. We’re not a big fan of calling the rally “safe-haven” driven because we all know that the dollar is also a so-called “safe-haven” asset. However, it’s not going to take on this role unless the economy begins to strengthen.

So continue to enjoy the rally in gold as long as there are signs of weakness in the U.S. economy, rates remain under pressure and the dollar continues to weaken.

Since the Fed is watching the labor market and inflation, watch for heightened volatility with the release of the ADP Non-Farm Employment Change report at 12:15 GMT. It is expected to show the private sector added 185K jobs. Gold prices could spike higher if the number comes in well-below the forecast.

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