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James Hyerczyk
Gold Bars and Dollar
Gold Bars and Dollar

Gold futures are trading higher shortly before the regular session opening on Wednesday, but remain below the 5-month high reached just two days ago. Traders are reacting to a slightly weaker U.S. Dollar. The market is also trading inside yesterday’s range which suggests investor indecision and impending volatility.

Although the main trend is up on the daily chart, Monday’s potentially bearish technical closing price reversal top and subsequent confirmation on Tuesday suggest the selling may be greater than the buying at current price levels.

At 1102 GMT, February Comex gold is trading $1250.10, up $2.90 or +0.23%.

Today’s headlines and other analysts want you to believe that the market is being supported by expectations of fewer rate hikes by the U.S. Federal Reserve next year, I happen to disagree. That’s the easiest thing to say, but I don’t think it’s the true reason for the early strength. It’s the slightly weaker U.S. Dollar.

The U.S. Dollar is currently at the make or break point again on the chart. This time, I’m not so sure the main top at 97.530 is going to hold as resistance. And if it is taken out with conviction, gold could get crushed in the process with $1236.70 to $1232.00 the first likely target zone.

I think the ship has sailed on expecting the dollar to weaken because the Fed is not expected to be as aggressive with its interest rate hikes in 2019. That story is old news. This time it is weaker currencies that is driving the dollar higher.

Higher Treasury yields are providing some support as well as optimism over an easing of tensions between the U.S. and China. On Tuesday, a Trump administration official said China has agreed to cut tariffs on U.S.-built cars and auto parts to 15 percent from the current 40 percent.

One factor supporting the U.S. Dollar is the steep drop in the British Pound. The Sterling is being pressured by the news that British Prime Minister Theresa May is close to getting booted out of office.

The Euro is being driven lower after Italy’s coalition parties said they would resist any major reduction to next year’s deficit target.

A bearish outlook for their economies is pressuring the Australian and New Zealand Dollars. Furthermore, increased demand for risky assets is making the Japanese Yen a less-desirable investment.

So at this time, we have to conclude that lower currencies are responsible for the developing weakness in the gold market.

Later today, investors will get the opportunity to react to the latest U.S. consumer inflation data. CPI is expected to come in unchanged and Core CPI is forecast to have risen 0.2%. Yesterday, the producer inflation report came in higher than expected.

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