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James Hyerczyk
Comex Gold

Gold futures are putting in a choppy performance on Monday with traders tracking a two-sided trade in stock indexes, the U.S. Dollar and Treasury yields. The price action suggests investor indecision but this time of trading action usually leads to a volatile breakout move. The direction is unclear at this time due to the offsetting fundamentals.

Treasury yields are falling sharply, but gold is trading lower. This tells us just how weak demand for gold is. It also reminds us that gold is not a safe-haven asset.

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At 18:42 GMT, April Comex gold is trading $1858.70, down $1.20 or -0.06%.

US Dollar Could Be Forming Support Base

Although most currency analysts expect a broad dollar decline during 2021, the short-term outlook for the greenback appears to be leaning to the upside, with recent price action suggesting a support base could be forming.

Further supporting the idea of an oversold U.S. Dollar is government trading data. According to data released on Friday by the Commodity Futures Trading Commission (CFTC) for the week to January 19, the next speculative short position on the dollar grew to its largest in ten years.

This opens the door to a potentially bullish short-covering rally that would likely crush gold prices over the short-run.

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Traders Eye-Balling Stimulus Talks and Fed

In a phone call on Sunday with Republican and Democrat lawmakers, officials in President Biden’s administration tried to head off Republican concerns that the $1.9 trillion stimulus proposal – hopes for which have lifted market sentiment since the U.S. elections last year – was too expensive.

The U.S. Federal Reserve meets on Wednesday and Fed Chair Jerome Powell is expected to signal that he has no plans to wind back the Fed’s massive stimulus any time soon – news which could push the dollar down further.

Short-Term Outlook

We could be looking at a rangebound trade until after the release of the Fed’s interest rate and monetary policy decisions on Wednesday.

The biggest fear for bullish gold traders is likely to be a surprise short-covering rally in the U.S. Dollar due to the massive short position being built in the March Dollar Index futures contract.

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

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