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James Hyerczyk
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Comex Gold

Gold futures are trading nearly flat on Thursday after an attempt to breakout to the upside failed to draw enough buying to continue the move. Prices rose to a three-month high earlier in the session as the U.S. Dollar eased and Treasury yields continued to weaken, but the buying dried up as the market approached a key technical resistance area at $1798.80.

At 15:04 GMT, August Comex gold is trading $1800.10, down $2.00 or -0.11%.

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The price action suggests that short-covering is still driving prices higher rather than new buying. It also suggests that buyers may be more interested in buying weakness or a pullback into support rather than strength or a breakout to the upside.

Gold does appear to be fairly priced, however, when compared to Treasury yields. The 10-year Treasury yield is at its lowest level since February 24. On this date, August Comex gold was trading $1787.90 to $1814.80. It closed at $1802.80. Gold is currently straddling the $1800.00 level.

Gold’s relationship with Treasury yields can’t be denied so in order to trigger an even stronger rally, Treasury yields are going to have to continue to drop. This could happen over the short-run if global equity markets plunge and traders seek shelter in the U.S. Treasurys.

10-year Treasury Yield Falls to 1.25% Amid Concerns about Economic Growth, COVID Variant

The 10-year U.S. Treasury yield fell as low as 1.25% on Thursday, its lowest point since February, continuing a sharp reversal in the bond market amid growing concern about the pace of the global economic recovery.

Thursday’s weekly jobless claims report indicated a slowdown in job growth. First-time applicants for unemployment benefits unexpectedly jumped to 373,000 in the week-ending July 3. Economists were looking to see 350,000 initial claims, according to Dow Jones.

The increase in initial filings for unemployment insurance comes after June’s jobs report on Friday showed the unemployment rate rose to 5.9%, higher than expected.

The spread of the more transmissible variant of COVID-19 also fueled worries about a deceleration in global economic growth, sending investors into the safety of U.S. Treasurys.

Japan declared a state of emergency for Tokyo that could reportedly lead to spectators being banned from the upcoming Olympic Games.

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Potentially bullish factors are lining up, but investors are being cautious. Instead of chasing prices higher, they appear to be waiting for a dip back into a value zone. Shorts continue to cover with buyers still on the sidelines. This is understandable since it was only a couple of weeks ago that gold traders were betting on higher interest rates and the start of tapering by the Fed.

The economic data suggests the recovery is moving slowly, which means the Fed may be in no hurry to tighten policy. The Fed minutes were dovish with half of the FOMC policymakers feeling the same way about the economy.

We could see a near-term spike to the upside in gold if a plunge in stock prices drives yields sharply lower.

For a look at all of today’s economic events, check out our economic calendar.
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