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James Hyerczyk
Comex Gold
Comex Gold

Gold is trading lower on Tuesday, putting the market in a position to close lower for the seventh session out of eight. The price action is similar to the weakness in crude oil which suggests the two markets may be coupled at this time. If the downside momentum continues today then the market will be in the vicinity of its September 28 bottom at $1184.30.

At 1310 GMT, December Comex Gold futures are trading $1201.60, down $1.90 or -0.16%.

Gold is under pressure because of the strengthening U.S. Dollar. The dollar is being supported by the hawkish U.S. Federal Reserve, which indicated last week that it would continue to raise interest rates in an effort to combat rising inflation. Currently, it is on a path to raise rates in December and perhaps three times in 2019 although the market disagrees with that assessment.

Essentially, it is a combination of a robust economy and the divergence in monetary policy of the hawkish U.S. Federal Reserve and the other dovish central banks that is making the U.S. Dollar a more attractive investment. And since gold is a dollar-denominated investment, the rising dollar makes it too expensive for foreign buyers, leading to a drop in demand for the precious metal.

Forecast

After early session weakness drove gold prices to a one-month low at $1196.60, the market has mounted a slight turnaround, mostly due to a weakening U.S. Dollar. A recovery in the Australian and New Zealand Dollars as well in the Euro is helping to put some pressure on the dollar.

The move in the Aussie and Kiwi is being generated by hopes of a de-escalation in the US-China trade dispute. This came about early Tuesday when a report said that China’s top trade negotiator was preparing to visit the United States ahead of a meeting between the two countries’ leaders. But don’t expect too much, too soon because President Trump is not scheduled to meet with China’s President until November 30 – December 1 at the G20 meeting in Argentina.

The direction of gold prices today will continue to be influenced by the direction of the U.S. Dollar. The direction of the dollar will be dictated by the movement in U.S. Treasury yields and demand for higher-yielding currencies.

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