James Hyerczyk
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Comex Gold

Gold is trading flat to lower on Monday with the U.S. futures market shut for the Labor Day holiday. Early in the day, spot gold prices edged higher in follow-through buying related to Friday’s weak U.S. labor market data that raised concerns over a quick economic rebound from the coronavirus-led slump that cemented hopes that lower interest rates would last longer.

At 07:34 GMT, Spot Gold is trading 1929.53, down $6.64 or -0.34%.

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Looking ahead to the rest of the week, gold prices are likely to be influenced by the direction of U.S. Treasury yields and the U.S. Dollar. Traders showed little reaction to falling yields early last week and again on Friday when yields spiked higher. The focus was primarily on the U.S. Dollar, which some say strengthened because of a stronger-than-expected manufacturing report and the better-than-expected decrease in the U.S. unemployment rate.

In my opinion, the U.S. Dollar strengthened because the Euro weakened, and dollar-denominated gold fell as the stronger dollar drove down foreign demand. At least that’s the way I saw the price action unfold on the charts.

Let’s face it, the fundamentals were a bit skewed last week for gold traders so I think the confusion encouraged the selling. Treasury yields were mostly lower last week until Friday. That should’ve supported gold early in the week then drew some sellers on Friday.

The better-than-expected ISM U.S. manufacturing PMI report was strong enough to put a lid on prices, but I didn’t see a sharp break coming. Meanwhile, the jobs report was actually mixed. The headline data was weak and therefore bullish for gold, but the unemployment rate was lower-than-expected and bearish for gold.

The U.S. Dollar rose against a basket of currencies last week, but I think most of the move was fueled by a weaker Euro and not by economic data. The single-currency was pressured by comments from European Central Bank (ECB) members who expressed their concerns about its high value. This encouraged Euro bulls to take profits, driving the dollar index higher and pressuring gold.

Short-Term Outlook

This week, we could learn a lot about how the ECB feels about the value of the Euro when it meets on Thursday. A bearish tone could drive gold prices lower.

Additionally, there is also a big Treasury auction this week which could drive yields higher. This could also put pressure on gold prices especially if it helps boost the U.S. Dollar. The U.S. Treasury will sell $50 billion of three-year notes on Tuesday, $35 billion of 10-year notes on Wednesday and $23 billion of 30-year bonds on Thursday.

Gold could feel pressure this week if hit by a combination of a weaker Euro and another jump in Treasury yields.

Further weakness in the stock market could also drive gold lower if investors send money into the dollar for protection.

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