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James Hyerczyk

Gold futures are trading higher on Wednesday on concerns over the lack of progress in U.S.-China trade relations. Renewed worries over a trade deal are helping to boost demand for safe-haven U.S. Treasurys, driving down yields. Lower yields tend to be supportive for gold prices. Investors are also becoming increasingly worried over the escalation of the violence in Hong Kong.

Investors are also moving money into the safe-haven Japanese Yen, solidifying my conclusion that today is likely to be a “risk-off” trading session.

At 11:20 GMT, December Comex gold is trading $1465.20, up $11.50 or +0.78%.

Protests in Hong Kong Adding to Market Jitters

The recent escalation in violence in Hong Kong is weighing on investor sentiment. Stocks in the region have been pressured all week, encouraging investors to seek protection in U.S. Treasurys, the Japanese Yen and gold.

Hong Kong leader Carrie Lam said Tuesday that protestor “paralyzing” the city were selfish. Hong Kong Senior Superintendent Kong Wing-cheung told reporters Tuesday that the city’s society “has been pushed to the brink of a total breakdown,” according to Reuters.

The ongoing protests in Hong Kong are likely to spur China to meddle in the city’s affairs more, according to one strategist that spoke to CNBC on Wednesday.

“I think what the protests in recent months made, the biggest change, is I think Beijing…will intervene in Hong Kong’s affair(s) a lot more,” David Cui, head of China equity strategy at Bank of America Merrill Lynch, told CNBC’s Street Signs.”

“There could be very meaningful wealth and income redistribution measures,” Cui said.


Trump Dampens Trade Deal Optimism

U.S. President Donald Trump may have ignited a fresh round of worries when he said on Wednesday that the two countries were close to finalizing a trade deal, but he fell short of providing a date or venue for the signing ceremony, disappointing investors.

Trump also said the U.S. will increase tariffs on China in case the first step of a broader agreement isn’t reached.

“If we don’t make a deal, we’re going to substantially raise those tariffs,” he said Tuesday in a speech to the Economic Club of New York. “They’re going to be raised very substantially. And that’s going to be true for other countries that mistreat us too.”

Daily Forecast

December Comex gold prices are likely to be underpinned on Wednesday by falling Treasury yields and lower demand for risk. Unless there is a breakthrough in U.S.-China trade relations, concerns over the lack of progress toward a deal are likely going to encourage investors to continue to shed risky assets.

Although the U.S. will report on consumer inflation today and Fed Chair Jerome Powell is scheduled to testify before a Congressional Committee, these two events are likely to take a backseat to worries about trade and the escalation of the violence in Hong Kong.

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