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James Hyerczyk
Comex Gold

Gold futures are down sharply on Tuesday amid a steady U.S. Dollar after weeks of decline and relatively firmer U.S. Treasury yields. The first signs of weakness began to appear last week when gold failed to rally on the escalating tensions between the United States and China.

However, since we don’t think of gold as a safe-haven investment, the move came as no surprise. Our work is heavily weighted on the relationship between U.S. Treasury yields and gold prices.

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At 13:39 GMT, December Comex gold is trading $1959.00, down $78.40 or -4.47%.

One of the most glaring signs that a sell-off was coming was the excessive bullishness by some analysts. One went as far as suggesting that gold wouldn’t break under $2000 because of simmering U.S. – China relations. Well it did and the U.S. and China still aren’t getting along, Trump still wants to ban the TikTok app and U.S. coronavirus cases are still rising.

The bullish headline readers are getting burned pretty badly today, but those who monitor the relationship between Treasury yields and gold prices are probably doing ok.

The other thing that caught investors off-guard is the quick turnaround in the U.S. Dollar after weeks of deterioration.

On Monday, I saw some analysts saying gold was trading higher on safe-haven demand then on Tuesday these same analysts said gold was trading lower because of safe-haven demand for the U.S. Dollar. Then they substituted the word “gold” and put in U.S. Dollar and said “during times of geopolitical risks, some investors turn to the U.S. Dollar for safety.” The very same argument they were making for being bullish on gold just a few days ago.

The bottom-line pay attention to gold’s relationship with interest rates. Gold is an investment. Treat it like you would a stock or anything else you would like to see appreciate in value. Furthermore, have an exit strategy. Additionally, know where your value zones are so if you do feel inclined to buy again, you are getting some bang for your buck.

This last leg up from $1819.30 to $2089.20 started on July 14. Its 50% to 6.18 retracement zone is $1954.30 to $1922.40. This is the first value area. It is currently being tested.

Short-term traders may like the long side here hoping for an intraday short-covering rally back to $2000 to $2008.40. Longer-term bulls may view the area as just better prices than $2089.20.

Short-Term Outlook

Trader reaction to $1954.30 to $1922.40 should set the tone the rest of the session on Tuesday. Over the near-term, demand for the U.S. Dollar should determine the direction of gold. Longer-term, gold will mostly be guided by interest rates and Fed policy.

There were no major changes in Fed policy so gold is still bullish over the long-run. It’s overpriced in the short-run, however.

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

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