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James Hyerczyk

Gold is trading sharply lower on Friday with the size of the sell-off threatening to turn the market lower for the week. The market is being pressured by firmer Treasury yields, increased demand for risky assets and a stronger U.S. Dollar. The catalyst behind the price action is Thursday’s report showing an increase in retail sales, which is helping to dampen concerns about a recession in the world’s biggest economy.

At 09:29 GMT, December Comex gold is trading $1519.00, down $12.20 or -0.80%.

Firmer Treasury Yields

U.S. government debt yields were higher Friday morning, as investors tentatively returned to riskier assets after a turbulent week saw long-term bond yields fall to historic lows.

Earlier in the week, a protracted trade war between the United States and China, and growing fears about a possible global economic slowdown prompted the 30-year Treasury bond yield to fall below 2% for the first time ever in the previous session. Additionally, the benchmark 10-year Treasury note yield fell below 1.5%, hitting a three-year low.

Finally, the 2-year/10-year Treasury yields inverted briefly, flashing a recession warning.

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Increased Demand for Risky Assets

U.S. stock index futures are trading sharply higher during the pre-market session. This is weighing on gold prices. Some traders are saying positive comments from President Trump may be behind the price action. Trump said on Thursday that he believed the U.S.-China trade dispute would be relatively short, adding China wanted to make a trade deal.

U.S. Dollar Strengthens

Firmer Treasury yields may be underpinning the U.S. Dollar, but it’s a drop in the Euro that is driving the greenback higher against a basket of currencies. The rising dollar is hurting demand for dollar-denominated gold.

The Euro fell to a two-week low on Friday against the dollar after a top official said “the European Central Bank (ECB) will announce a package of stimulus measures at its next policy meeting in September that should exceed investors’ expectations,” according to the Wall Street Journal.

“It’s important that we come up with a significant and impactful policy package in September,” said Mr. Rehn, who sits on the ECB’s rate-setting committee as governor of Finland’s central bank.

Daily Forecast

Gold is going to have a hard time mounting a rally on Friday as long as yields remain firm, investors are willing to take on risk and the dollar continues to strengthen. It looks like it is going to take a surprise event to turn the market around today.

On the data front, a report on housing starts and building permits is due at 12:30 GMT. Consumer sentiment numbers will be released at 14:00 GMT.

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