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James Hyerczyk
Comex Gold
Comex Gold

A firmer U.S. Dollar, higher U.S. Treasury yields and increased demand for higher risk assets are helping to weigh on gold prices early Tuesday. The price action the past two sessions suggests a change in investor sentiment may be taking place. It initially started on Monday when gold traders failed to respond to an extremely volatile U.S. stock market session.

At 0811 GMT, December Comex Gold is trading $1225.20, down $2.30 or -0.19%.

The gold market weakness, which began on Monday, has spilled over to Tuesday’s session. This pressure could be coming from increased demand for risky assets. Not only is gold being shunned as a safe-haven asset, but so are U.S. Treasurys and the Japanese Yen. This could be an early sign that investors are changing their minds about a stock market meltdown.

U.S. stock futures are pointing toward a higher opening on Tuesday, helped by mostly positive markets in Asia. The catalyst behind the rebound is a recovery in mainland Chinese stocks following comments from the country’s securities regulator.

According to reports, the rally in the mainland Chinese stock market started after the country’s securities regulator said it would improve market liquidity and guide more long-term capital into the market.

The China Securities Regulatory Commission turned the market higher after it said it will encourage share buybacks and mergers and acquisitions by listed firms, reduce unnecessary interference in trading, and create a level playing ground for investors.

Forecast

Since stock market weakness was the catalyst behind gold surge in October, we’re going to keep an eye on equities today because firmer equity markets could take gold prices lower.

Monday’s steady U.S. economic data could also be behind the selling pressure in gold, but it really showed no surprises. The Core PCE Price Index came in at 0.2%, better than the 0.1% forecast. Personal Spending came in as expected at 0.4% and Personal Income came in lower than expected.

Today’s reports should be minor events. The S&P/CS Composite-20 HPI is forecast at 6.0% and CB Consumer Confidence is expected to come in at 136.3, down slightly from 138.4.

The daily chart indicates sellers are taking control. Earlier in the session, key trend line support was broken at $1228.30. If the downside momentum continues, we’re likely to see the selling to extend into $1222.70.

The support at $1222.70 is also the trigger point for an acceleration to the downside with $1215.20 the next likely target.

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