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James Hyerczyk
Gold Bars and Dollar

Gold futures are trading higher on Wednesday shortly after the cash market opening. The market has regained some of its upside momentum after rebounding from early session weakness. The catalysts behind the strength are lingering concerns over Brexit, pessimism over U.S.-China trade relations and weaker-than-expected U.S. economic data, which could mean an end of the month rate cut by the Fed.

At 12:57 GMT, December Comex gold is trading $1494.60, up $11.10 or +0.77%.

Renewed Brexit Worries

Gold is being underpinned this morning by renewed worries over Brexit after Tuesday’s optimistic outlook drove gold prices sharply lower.

On Tuesday, optimistic comments on Brexit from European negotiator Michel Barnier were backed up by reports that a draft legal text over the divorce was being drawn up.

“Our team(s) are working hard, and work has just started now today, this work has been intense over the weekend and yesterday, because even if the agreement will be difficult, more and more difficult, to be frank, it is still possible this week,” Barnier told reporters in Luxembourg on Tuesday morning.

He added that “any agreement must work for everyone,” saying it is “high time to turn good intentions into a legal text.”

By mid-afternoon (Tuesday), one report suggested that a draft deal was in the works according to two separate sources familiar with negotiations.

On Wednesday, traders aren’t so optimistic about a deal and are seeking protection in gold. This comes after “constructive” talks between the U.K. and the E.U. to get a Brexit deal, went on past midnight. Investors are still unclear if both parties can avoid postponing the U.K.’s departure from the EU on October 31.

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U.S.-China Trade Relations Sour

There’s a little more tension between the United States and China on Wednesday, which is raising concerns over whether the two parties will reach even a partial trade agreement over the near-term.

This is stemming from reports that China is threatening “countermeasures” in response to the U.S. House of Representatives passing four pieces of legislation taking a hard line on Beijing for its violent response to protesters in Hong Kong.

U.S. Retail Sales Underperform

U.S. retail sales fell for the first time in seven months in September, raising fears that a slowdown in the American manufacturing sector could be starting to bleed into the consumer side of the economy. Furthermore, the disappointing report could help alter the split in the Federal Open Market Committee (FOMC) with more policymakers leaning toward a rate cut.

Daily Forecast

I’m looking for prices to remain underpinned unless an actual deal between the U.K. and the EU over Brexit is actually announced.  The U.S. and China seem far apart in their efforts to finish phase one of their partial trade agreement and the retail sales report is helping to support an end of October rate cut by the Fed.

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