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James Hyerczyk
Comex Gold

Gold futures are trading sharply higher on Wednesday shortly before the cash market opening, recovering a little more than 62% of this week’s earlier losses. The market is being driven higher by a slightly weaker U.S. Dollar, a steep drop in Treasury yields and lower demand for risky assets. Later today at 12:30 GMT, investors will get the opportunity to react to the latest data on U.S. consumer inflation. This has the potential to be a market moving event.

At 11:39 GMT, August Comex gold futures are trading $1338.40, up $7.20 or +0.54%.

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Global Equity Markets Weaken

Global equity markets snapped a week-long winning streak on Tuesday on renewed concerns over U.S.-China trade relations. The catalyst behind the price action is tough talk from President Trump on tariffs, which reminded investors that there is still a trade impasse going on.

On Tuesday, Trump defended the use of tariffs as part of his trade strategy. China fired back by vowing a tough response if Washington insists on escalating trade tensions amid ongoing negotiations. Trump also emphasized he was holding up a trade deal with China and had no interest in moving ahead unless Beijing agrees again to four or five “major points”, which he did not specify.

Despite the comments, some traders remained optimistic that the deal could get done over the near-term if Trump’s meeting with Chinese President Xi Jinping at the G20 summit in Japan later this month is successful.


Treasury Yields Resume Their Downtrend

Treasury yields are tumbling again on Wednesday, once again putting pressure on the U.S. Federal Reserve to cut interest rates at next week’s two-day meeting on June 18-19. Investor expectations of a June rate cut from the Fed rose last week to 27.5%, according to the CME Group’s FedWatch tool. The market gives July a 79% chance of a Fed rate cut.

Treasury Secretary Mnuchin Says Bond Market Telegraphing Rate Cut, Not Recession

Treasury Secretary Steven Mnuchin said earlier this week that falling bond yields, rather than warning of a recession, are indicating that the Federal Reserve will cut interest rates in the coming months.

“I would say that the bond markets are predicting…a lowering of interest rates,” Mnuchin said.  Mnuchin also said the global economy is now in an environment where “interest rates are very low around the world,” which is what investors are “seeing in the U.S. bond markets.” But the Treasury sees “no signs of a recession”.

Daily Forecast

Today’s price action suggests investors are banking on falling interest rates to weaken the U.S. Dollar further. So far this week, the dollar has remained steady against a basket of major currencies. If it suddenly weakens then gold prices could surge above last week’s high at $1352.70.

Today’s U.S. consumer inflation report could send the dollar lower and gold higher if it comes in weaker than expected. The report, due out at 12:30 GMT, is expected to show CPI rose 0.1% in May and Core CPI increased by 0.2%.

Even with a weaker number, the Fed is not expected to cut rates in June, but the odds of a July rate cut should increase. This should be supportive for gold prices.

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