James Hyerczyk
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Comex Gold

Gold futures are trading higher, but well off the high of the session with the price action being influenced by Treasury yields and the U.S. Dollar. The early strength is likely being fueled by aggressive counter-trend value buying with the market currently testing a key 50% to 61.8% retracement zone.

Position-squaring ahead of the weekend could also be providing some support. Nonetheless, the fundamentals remain bearish, which supports the notion that the choppy trade is being fueled mostly by positions adjustments.

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At 12:43 GMT, August Comex gold is trading $1779.40, up $4.60 or +0.26%. This is down from an intraday high of $1797.90.

With technical factors providing guidance today, our chart work shows traders are attempting to consolidate inside the key retracement zone. Overcoming $1798.80 will indicate the selling is getting weaker or the short-covering stronger. A continuation of the down trend under $1770.40 will indicate the selling pressure is getting stronger.

Gold may be trying to consolidate on Friday, but it’s still in a position to post one of its worst weekly losses in months.

While gold is being pressured, the U.S. Dollar is headed for its best week in nearly nine months on Friday, with rival currencies struggling to shake the pressure exerted by the Federal Reserve’s hawkish shift in tone. The stronger greenback is helping to dampen foreign demand for dollar-denominated gold.

It’s actually a combination of a rising Treasury yields and U.S. Dollar that are pressuring gold futures with investors pricing in a sooner-than-expected tapering of extraordinary U.S. monetary stimulus.

On Wednesday, the Federal Reserve signaled it would be considering whether to taper its asset purchase program meeting by meeting and brought forward projections for the first post-pandemic interest rate hikes into 2023.

Daily Forecast

The direction of the gold market on Friday will be determined by trader reaction to the technical retracement zone at $1798.80 to $1770.40. Short-covering could increase on a sustained move over $1798.80, while continued pressure under $1770.40 will indicate the selling pressure is getting stronger.

Oversold conditions could also trigger a rebound rally with analysts from Goldman Sachs saying, “In a now familiar pattern, the recent gold move has outpaced both the move in the dollar and in real rates, indicating it is due for an upward price reversal in coming weeks.

We’ll know if they’re right if aggressive counter-trend buyers can overcome $1798.80 with conviction.

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