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James Hyerczyk
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Comex Gold

Gold futures are trading slightly lower in the overnight session on Wednesday as prices consolidate just below a key resistance level at $1746.90 and a main top at $1756.00. The price action suggests the current short-covering rally may be over at least temporarily and the market may retrace some of its gains from March 31, but not necessarily trigger the resumption of the downtrend.

At 08:21 GMT, June Comex gold futures are trading $1737.70, down $5.30 or -0.30%.

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The current minor range is $1677.30 to $1746.70. A normal 50% retracement of this range would drive the market back to $1712.00. This would form a potential support cluster with the long-term Fibonacci level at $1712.90.

The first rally following a prolonged move down in terms of price and time is typically short-covering. If the market is set to move higher then real buyers are likely to come in following a 50% retracement of the first leg up. These buyers are going to try to form a potentially bullish secondary higher bottom that could lead to a change in trend on a move through $1756.00.

Retreating Dollar and Lower US Treasury Yields Driving Prices Higher

Gold has been supported for a week by a steady break in the U.S. Dollar against a basket of major currencies and a drop in U.S. Treasury yields. The same factors that drove prices to a multi-month low last week.

The muted reaction to Friday’s U.S. jobs report and Monday’s robust ISM Services PMI report may have sent a signal that the rise in yields since the first of the year may have been an overreaction to the threat of inflation. It also suggests the reports may have been priced into yields and the U.S. Dollar. After all, even Federal Reserve Chairman has said the economy would rebound at its strongest rate since 1984.

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Daily Forecast

The key report on Wednesday that could drive the price action late in the session is the Federal Reserve minutes from its last meeting on March 17. Traders will be looking at the minutes for more cues on Fed monetary policy.

Earlier in the week, Cleveland Fed Bank President Loretta Mester on Monday said the U.S. central bank should stick to its easy policy to support growth further.

Look for the Fed minutes to deliver a similar message.

Technically, the fundamentals may be too bearish to risk chasing it higher, in our opinion, but a pullback into the support cluster at $1712.00 – $1711.90 may be an attractive area for aggressive buyers to step in.

For a look at all of today’s economic events, check out our economic calendar.

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