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James Hyerczyk
Comex Gold

Gold is trading marginally lower on Tuesday after buyers came in earlier in the session to successfully defend against a breakdown under yesterday’s low at $1448.90. Although the chart pattern indicates there is room to the downside with the next major target coming in at $1412.10, time may have run out for this break and the market may be ripe for a 2 to 3 day counter-trend short-covering rally.

At 09:54 GMT, December Comex gold futures are trading $1456.80, down $0.30 or -0.02%.

‘Risk-on’ Sentiment Drags Prices Lower

Gold prices fell on Monday to their lowest level in more than three months, dragged below technical support at $1465.00 as upbeat risk sentiment kept U.S. stock indexes close to record levels, while nervous investors awaited fresh news on U.S.-China trade relations.

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Recession Fears Subside

Gold was trading near $1396.40 to $1412.10 when fear of a recession drove prices to $1466.20 in August. Now that those fears have been lifted, it seems reasonable that gold could return to those levels, especially with Treasury yields rising and demand for risky assets increasing.

Boston Fed’s Rosengren Sees U.S. Economy ‘In Pretty Good Shape’

In U.S. news, Boston Federal Reserve Bank President Eric Rosengren on Monday said the U.S. economy is in good condition and nothing he has seen in recent data would change his view that the Fed’s latest interest rate cut was not needed. Given that Rosengren has voted against rate cuts, this news should be considered bearish for gold prices.

Daily Forecast

The downtrend is pretty clear, but in order to continue to generate the downside pressure, yields must continue to rise, the dollar has to remain strong and demand for equities must continue to strength. This is because there are wildcards out there that could shift investor sentiment fairly quickly.

The lack of fresh updates on the progress of the trade talks from China, and comments from President Trump, which seem to indicate he is in no hurry to cut a deal, could easily shift sentiment, which could draw investors out of risky assets and back into Treasury bonds.

This would put pressure on interest rates, while sending investors back into gold and the safe-haven Japanese Yen.

Although gold is trading more than $40 above its closest value zone, I wouldn’t be surprised by a 2 to 3 day counter-trend rally to alleviate some of the downside pressure before the selling resumes.

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