Gold prices are retreating early Tuesday after surging to their highest level in six-weeks the previous day. Investors are being cautious ahead of the Confirmation hearing for U.S. Federal Reserve chair nominee Jerome Powell and the Senate vote on tax reforms perhaps as early as November 30.
At 0810, February Comex Gold futures are trading $1297.00, down $1.90 or -0.15%.
Forecast
Gold prices could retreat further if Powell comes across as following the same path as his predecessor Janet Yellen. Prices will also be pressured by positive developments toward the passing of U.S. tax reforms into law.
In remarks prepared for his Tuesday hearing released by the Fed, Powell defended the central bank’s use of broad crisis-fighting powers positioning himself as an extension of the central bank policies of current Chair Janet Yellen and her predecessor Ben Bernanke.
Some analysts are saying Powell’s decisions on rates suggested that he is likely to be almost indistinguishable from those of Yellen, but they would not be surprised if in the next few months they see him taking a dovish path.
In other words, he is not likely to push to raise rates too much, but will instead monitor U.S. inflation and the job market.
Gold traders will also be keeping an eye on the progress of U.S. tax reform. They will be particularly interested in the details of the tax cuts. The Senate may even vote on the matter later this week on November 30.
In other news, there are some reports surfacing that North Korea may be preparing for another ballistic missile launch. This should underpin prices by spurring safe haven buying.
According to the U.S. Commodity Futures Trading Commission (CFTC), during the week to November 21, speculators cut their net long position in gold by 3,944 contracts to 177,066 contracts in the week.
February Comex Gold prices remain inside its two-month range of $1267.00 to $1312.70. However, it is testing the upper end of the range. I think the direction of gold prices over the near-term will be determined by the movement in U.S. equities.
If U.S. equity prices continue to post new highs then gold’s upside will be limited. Only a sharp break in equity prices will fuel a sustainable breakout to the upside.