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James Hyerczyk
Comex Gold
Comex Gold

Gold futures are trading higher early Friday with the rally being fueled by safe-haven buying in reaction to sharply lower U.S. equity markets. Stocks are under pressure again after shares of Amazon fell in the aftermarket session due to misses on revenue and guidance in its quarterly earnings report. A higher close today mean gold’s fourth straight week of gains, the longest winning streak since January.

At 0851 GMT, December Comex Gold is trading $1239.30, up $6.90 or +0.56%.

Heightened volatility in the stock market on Friday is likely to underpin gold prices throughout the session. Additional support is being provided by political and economic uncertainties including tensions between Saudi Arabia and the West, uncertainty surrounding Italy’s budget, and Brexit.

In economic news on Thursday, Core Durable Goods Orders came in lower than expected at 0.1%, missing the 0.5% forecast. Durable Goods Orders, however, beat the -1.3% forecast with a 0.8% reading.

The Goods Trade Balance rose to -76.0 Billion. This was worse than the -74.9 Billion forecast. Preliminary Wholesale Inventories rose 0.3%, better than the 0.5% estimate. The previous reading was revised higher to 1.0%.

Weekly Unemployment Claims were 215K, slightly above the 214K forecast. Pending Home Sales improved nicely by 0.5%. This beat the -0.1% forecast.

In Fed news, Federal Reserve Vice Chairman Richard Clarida, in his first major policy speech since being seated at the central bank, said more interest rate increases are likely warranted as the economy continues to gather strength. In assessing current conditions, Clarida said growth broadly and with the job market in particular has surprised him.

“Based on my reading of the accumulating evidence, I believe that trend growth in the economy may well be faster and the structural rate of unemployment lower than I would have thought several years ago,” he said during a speech in Washington, D.C.

Clarida went on to say he sees “further gradual adjustment” in the Fed’s benchmark as likely. He said that could change if the data move and inflation turns lower.

In his speech, Clarida cited research, similar to that used by Powell that shows the danger of waiting too long to raise rates. Specifically, he talked about the “neutral” rate of interest that is neither stimulative nor accommodative, and said history has shown that staying below neutral risks letting inflation run too hot.

Forecast

Gold is at a critical area on the daily chart. The trigger point for a breakout to the upside is $1246.30. If buyers can take out this level with conviction, we could see a rally to $1264.90 over the near-term.

Traders are being cautious as we approach $1246.30. This is because of the higher outlook for interest rates and the strong U.S. Dollar. However, safe-haven buying may be making it difficult for bearish traders to stand their ground. Another steep drop in equity prices may be the catalyst for a breakout to the upside. Additionally, a weaker dollar could cause a similar move.

If we don’t see the breakout then we’re likely to see a rangebound trade in gold as long as there is heightened volatility in the stock market.

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