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James Hyerczyk
Comex Gold

Gold futures are inching higher on Monday after last week’s plunge was fueled by the liquidation of safe-haven assets as tensions between the United States and China eased. Demand for risky assets jumped last week after the United States and China agreed to resume trade talks in early October. This encouraged investors to reduce hedge positions in Treasurys, gold and the Japanese Yen.

At 12:07 GMT, December Comex gold is trading $1518.80, up $3.30 or +0.22%.

In the early trade, rising Treasury yields and higher stock index futures are helping to cap gains, while a weaker U.S. is underpinning the precious metal. Yields and stocks are being supported by positive comments from Federal Reserve Chairman Jerome Powell on Friday.

Powell Remarks Pressuring Gold

“The Fed has through the course of the year see fit to lower the expected path of interest rates,” he said. “That has supported the economy. That is one of the reasons why the outlook is still a favorable one.”

Powell also described the labor market as in “quite a strong position” and the consumer to be “strong” as well.

Powell went on to say, “We’re not forecasting or expecting a recession,” he said. “The most likely outlook is still moderate growth, a strong labor market and inflation continuing to move back up.”

“Our main expectation is not at all that there will be a recession,” Powell said.

Powell also pledged that the Fed will “continue to act as appropriate to sustain this expansion.”


Trend Still Up, but in Pause Mode

“Gold has been retreating because of risk appetite returning to the market, so the concerns (over U.S.-China trade ties and global growth) seem to be subdued,” Commerzbank analyst Eugen Weinberg said, adding that monetary easing by central banks could drive a rally in gold in the medium term.

“We’re likely to see a pause in the upward trend, but the trend is still intact.”

Hedge Funds Hike Bullish Positions

Hedge funds and money managers hiked their bullish positions in COMEX gold and silver contracts in the week to September 3, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday. The survey was taken before last week’s big break.

Daily Forecast

We could see a two-sided trade on Monday as investors continue to transition before short-term bullish to short-term bearish.

While it is true that lower interest rates tend to drive up demand for gold, most of the rate cuts are already priced in for this year with the European Central Bank expected to cut rates and provide more stimulus on Thursday and the Fed expected to cut rates in a little more than a week. The Reserve Bank of Australia and the Reserve Bank of New Zealand are also expected to cut in October.

Since there aren’t expected to be any surprises from the major central banks and the U.S. and China preparing to resume trade talks in early October, I think gold is going to have a hard time rallying from current price levels. I expect a near-term break into a value zone.

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