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James Hyerczyk
Comex Gold
Comex Gold

Gold futures are plunging for a second day on Wednesday with the selling being fueled by a stronger U.S. Dollar, increased appetite for risk and a hawkish outlook for U.S. interest rates.

At 0902 GMT, August Comex gold futures are trading $1222.10, down $5.30 or -0.42%.

The catalyst behind the selling pressure is Tuesday’s hawkish testimony before Congress from U.S. Federal Reserve Chairman Jerome Powell and the potential for the same when he returns to the hot seat for a second day on Wednesday.

Powell reiterated the Fed’s game plan, highlighted in the last Fed monetary policy statement in June, the recently released Fed minutes and his commentary from speeches and interviews, meaning he talked about the strong economy and the need for gradual rate hikes. His hawkish tone was enough to send gold investors scrambling for the exits.

During his semiannual monetary policy report to the Senate Banking Committee on Tuesday, Powell said the economy is strong enough to handle tighter monetary policy. He noted:  “Overall, we see the risk of the economy unexpectedly weakening as roughly balanced with the possibility of the economy growing faster than we currently anticipate.” Powell also said growth in the second quarter was “considerably stronger than in the first.”

Powell also talked about the ongoing trade disputes between the United States and its major trading partners in China and the European Union. He said there is a “rising chorus of concern” from businesses over rising tariffs. “In general, countries that have remained open to trade, that haven’t erected barriers including tariffs, have grown faster, they have higher incomes, higher productivity,” he said.


The reaction by bearish traders in the gold market to Powell’s testimony indicates that they are happy with the economy and the Fed’s “gradual” pace of interest rate hikes.

On Tuesday, economic news also helped underpin the U.S. Dollar, while pressuring gold prices with U.S. Industrial Production coming in at 0.6%, higher than the 0.5% forecast. Later today at 1230 GMT, this trend could continue with the release of reports on building permits and housing starts. June Building Permits are forecast to have risen by 1.33M units and June Housing Starts by 1.32M units. The Fed will also release its Beige Book at 1800 GMT. It is a report on East Coast manufacturing.

At 1400 GMT, Fed Chair Powell concludes his congressional testimony. He could be pushed harder on the impact of tariffs for a second day, especially by the Democrats on the Senate Banking Committee. Being a data-dependent Fed member, he’s not likely to get specific about the impact of the trade disputes until he sees some real numbers.

The charts indicate that resistance is the old tops at $1228.20 and $1230.70. On the downside, the next target is the February 2017 bottom at $1217.20. This price is the trigger point for a steep sell-off with $1158.40 the next major downside target.

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