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James Hyerczyk
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US Dollar and Gold

Gold futures are trading lower on Wednesday despite a slight drop in U.S. Treasury yields and a weaker U.S. Dollar. The selling is being fueled by so-called “safe-haven” buyers who are liquidating speculative positions placed as a hedge against escalating tensions in the Middle East. Stronger-than-expected economic data on Tuesday also reduced the chances of an aggressive interest rate cut by the Federal Reserve at the end of June.

At 11:30 GMT, August Comex gold is trading $1403.60, down $7.50 or -0.53%.

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At Tuesday’s close, investors were still pricing in a 100% chance of a 25-basis point rate cut at its July 30-31 policy meeting. However, the chances of a 50-basis point rate cut fell to 27%.

Pressuring the more aggressive rate cut was U.S. retail sales that increased more than expected in June, adding to recent evidence that the economy is improving. Adding to the sentiment, Federal Reserve Chairman Jerome Powell on Tuesday reiterated pledges to “act as appropriate” to sustain the U.S. economic expansion.

Chicago Federal Reserve President Charles Evans, however, kept talk of a half-a-point rate cut alive when he said a 50-basis point rate cut could mean that the Fed’s inflation goal of 2% is reached sooner.

President Donald Trump said on Tuesday the United States still has a long way to conclude a trade deal with China, but could impose tariffs on an additional $325 billion worth of Chinese goods “if we want.”

“Safe-haven” liquidation took place on Tuesday after U.S. Secretary of State Mike Pompeo said Iran was ready to negotiate regarding its missile program. Tensions between the United States and Iran over Tehran’s nuclear program have previously lent support to gold prices.

Daily Forecast

Investors are going to continue to monitor the price action in Treasurys and the U.S. Dollar.

Prices could turn higher if U.S.-China trade negotiations fall apart, or if Iran denies it is willing to begin talks with the U.S. These two factors will remain wildcards.

Investors will get a chance today to react to several economic reports and speeches from Fed members. At 12:30 GMT, the U.S. will release reports on Housing Starts and Building Permits. At 18:30 GMT, Kansas City Fed President Esther George will speak.

The Fed is also scheduled to release its latest Beige Book at 18:00 GMT. This report will offer insight into its assessment of manufacturing in the Northeast.

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