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James Hyerczyk
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Gold futures are down sharply on Tuesday as long investors continue to feel the heat being generated by rising U.S. Treasury yields and increasing demand for risky assets. The catalysts behind the weaker price action are hopes of at least a partial trade deal between the United States and China and lower expectations of potential rate cuts by the major central banks.

At 12:26 GMT, December Comex gold is trading $1503.50, down $7.60 or -0.51%.

US-China Inching toward Trade Deal

If you believe the headlines, the United States and China are apparently inching close to completing “Phase 1” of the partial trade deal agreed upon in early October.

Optimism over the deal began to increase last Friday after China said that it had reached a consensus with the U.S. in principle after a phone call among high-level trade negotiators last week. Meanwhile, the White House added in a statement Friday that the trade representatives “made progress in a variety of areas and are in the process of resolving outstanding issues. Discussions will continue at the deputy level.”

Chinese President Xi Jinping and U.S. President Donald Trump have been in continuous touch through “various means,” China said on Monday, when asked when and where the two leaders might meet to sign a trade deal.


Positive U.S. Economic Data

Improved U.S. jobs growth numbers in October and upward revisions of the two previous months are also helping to pressure prices by erasing some of the fears of recession that had provided support for gold since early August.

The government labor report showed the U.S. economy added 128,000 jobs in October, exceeding the estimate of 75,000 from economists. There were also big revisions of past numbers as well. August’s initial 168,000 payrolls addition was revised up to 219,000, while September’s jumped from 136,000 to 180,000.

Central Banks Stand Pat on Rate Cuts

Over the last 30 days, central bankers have held policy steady including the European Central Bank, the Bank of England and the Bank of Japan.

The U.S. Federal Reserve cut its benchmark interest rate by 25 basis points on October 30, while signaling it would pause in December. It did so by removing a key clause that had appeared in post-meeting statements since June saying it was committed to “act as appropriate to sustain the expansion.”

Earlier today, Reserve Bank of Australia policymakers decided to hold policy steady at 0.75%, as expected, while upgrading forward-guidance. In its policy statement, the RBA said, “The easing of monetary policy since June is supporting employment and income growth in Australia and a return of inflation to the medium-term target range.” Traders interpreted this to mean that the central bank’s easing bias may no longer be warranted.

On November 13, the Reserve Bank of New Zealand is also expected to hold rates steady.

Daily Forecast

One of the factors helping to support the gold market throughout the late summer and early fall was the possibility of aggressive rate cuts by the central banks. With most of the majors indicating they would be taking a break from further cuts over the near-term, gold buyers no longer have this to lean on and are lightening up their positions.

Fear of a global recession was also propping up gold prices, but with this fear dampened, investors who sought shelter in gold are now pulling their money out of the safe-haven asset and putting it to work in the higher-yielding stock market.

Gold prices could weaken further as the reasons for buying it in the first place begin to disappear.

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