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James Hyerczyk

Falling Treasury yields, a weaker U.S. Dollar and lower demand for risky assets seem to be the key ingredients providing support for gold prices early Wednesday. Additional help is being provided by speculative buyers reacting to a favorable chart pattern and the news that hedge funds and money managers are now net short the market.

At 14:42 GMT, December Comex Gold futures are trading $1241.20, up $6.60 or +0.53%.

There’s only one U.S. economic report on Wednesday, however, we could already be looking at position-squaring ahead of Thursday’s Durable Goods report and Friday’s Advance GDP report.

Core Durable Goods are expected to rise 0.5% and Durable Goods Orders are forecast at 3.0%. Advance GDP is expected to come in at 4.1%, up from 2.0%.

On Wednesday, look for New Home Sales to show 669K new units were added. This is down from the 689K reported last month.

The news that China will be adopting a more vigorous fiscal policy to help tackle external uncertainties without resorting to strong policy stimulus is helping to underpin commodity prices like copper. This buying may be spilling over to the gold market.

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There is a development in the gold market that we are watching because it is often a very good contrarian indicator. Hedge funds and money managers switched to a net short position in COMEX gold contracts for the first time since 2016 in the week to July 17, U.S. Commodity Futures Trading Commission (CFTC) data showed last Friday.

We believe this could develop into a good indicator of aggressive counter-trend buying in the near future. However, we don’t know the catalyst at this time that could drive out the short-sellers and bring in the new buyers. We’ll let Treasury yields, the Dollar and appetite for risk dictate the price action rather than speculate at this time.

Technical factors are also contributing to today’s upside bias. Last Thursday, the market hit a one-year low at $1221.00. Within two trading sessions, it had rallied nearly $24.00 to $1244.70. Currently, traders are showing respect for the mid-point of this trading range. Additionally, it looks as if a secondary higher bottom may have formed at $1227.00. These two events strongly suggest that the selling pressure has stopped and that short-sellers are being to cover.

We could be looking at an acceleration to the upside if speculative buyers can take out $1244.70, although I expect to see some selling between $1249.60 to $1256.30.

The trigger point for an acceleration to the upside is $1256.30. My best guess says that breakout through this level will be fueled by a big drop in the U.S. Dollar.

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