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James Hyerczyk
Comex Gold
Comex Gold

Gold futures are trading higher on Monday on light pre-holiday volume. The rally is being supported by a weaker U.S. Dollar, a slight drop in U.S. Treasury yields and a two-sided trade in U.S. equity indexes. Gold is currently trading slightly below last week’s five-month high at $1270.30, but there appears to be enough upside momentum in the market to eventually challenge the July 9 top at $1284.10.

At 1153 GMT, February Comex gold is trading $1264.10, up $6.00 or +0.48%.

Fundamentally, gold investors remained concerned about political uncertainty in the United States and a potential global economic slowdown.

Signs of political instability in the United States is driving investors into the safe-haven Treasurys. This is pressuring yields, making the U.S. Dollar a less-attractive investment. Foreign demand for dollar-denominated gold tends to increase when the greenback weakens.

A global economic slowdown will put pressure on interest rates because it will force the central banks to think twice about raising interest rates. Once again, lower rates will likely increase demand for gold.

Furthermore, the plunge in U.S. equity markets is also encouraging investors to allocate some of their investment capital into gold as a safe-haven investment.

Mid-to-longer-term, gold prices could be supported by speculation the U.S. Federal Reserve would adopt a less aggressive monetary policy in 2019. Last week, the Federal Open Market Committee issued fresh forecasts that showed only two more rate hikes next year compared to the three projected in September.

In other news, hedge funds and money managers raised their net long positions in Comex gold to a six-month high in the week to December 18, indicating fresh buying.


Ultimately, the direction of gold prices will be determined by the U.S. Dollar. Gold prices are likely to continue to move higher if the U.S. Dollar weakens. Lower interest rates should take care of this.

However, gold could have a problem attracting buyers if stock market volatility and weakness encourages investors to seek shelter in the safe-haven U.S. Dollar.

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