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James Hyerczyk

Gold futures are trading slightly lower on Thursday after clawing back earlier losses. The price action is basically being controlled by the headlines today as investors try to make sense of the latest developments over U.S.-China trade relations.

Prices are being supported by one headline saying a trade deal could be delayed until early next year. Another headline says trade negotiations have hit a snag because the U.S. refuses to agree to rollback tariffs. Still another says President Trump’s signing of two bills that back protesters in Hong Kong, could drive China away from the negotiation table.

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At 09:17 GMT, December Comex Gold futures are trading $1471.60, down $2.60 or -0.18%.

Gold prices are being capped after China’s top negotiator reportedly expressed optimism in sealing a deal.

Bloomberg reported mid-morning that Chinese Vice Premier Liu He said he was “cautiously optimistic” in reaching a “phase one” deal, but added that he was “confused” about U.S. demands.

Traders Expecting Heightened Volatility

Some traders are calling the negative headlines “noise”, further saying that traders are basically following the news on the trade war, and having a hard time predicting when we will have good news or bad news.

This creates uncertainty and investors tend to leave risky assets when there is uncertainty and seek protection in traditional safe-haven Treasurys and Japanese Yen, with some moving money into the so-called safe-haven gold market.

One trader basically said to continue to expect volatility and the possibility of a two-sided trade because, “Market sentiment may change but the fundamentals of the negotiations have not. There have always been unresolved issues in these talks,” he said. “There is not a lot of willingness in the market to bet on one direction or another.”


Fed Minutes

The minutes of the U.S. Federal Reserve monetary policy meeting on October 29-30 had little impact on gold prices on Wednesday. Most of the information had been priced in for weeks. Gold topped at $1519.00, two days after the last Fed meeting and proceeded to plunge to $1446.20 in a matter of days. This move essentially told us the Fed’s message was hawkish, or less-dovish than expected.

The minutes showed a divided Federal Reserve decided to hit pause in its easing cycle following a rate cut in October. Furthermore, the summary showed policymakers were in no hurry to reassess the path of interest rates.

Daily Forecast

U.S. reports on Thursday include the Philly Fed Manufacturing Index, Weekly Unemployment Claims, the Conference Board’s Leading Index and Existing Home Sales. I don’t expect the numbers to have a major impact on gold prices since most traders are focused on the trade deal news.

However, weak Philly Fed and Weekly Unemployment Claims numbers could create a sense of urgency for U.S. negotiators to get the deal done sooner than expected.

Essentially, I expect gold traders to react today to the direction of U.S. Treasury yields and equity markets. Falling yields and stocks will underpin gold prices. Rising yields and increased demand for equities will be bearish for gold.

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