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James Hyerczyk
Comex Gold
Comex Gold

Gold prices are drifting lower for a second session on Wednesday. Sellers are ignoring the weaker U.S. Dollar early in the session with traders choosing to focus on rising U.S. Treasury yields and increased appetite for risk. The catalyst behind the rally is the hope that this week’s trade talks have brought the United States and China closer to a new trade deal.

At 0949 GMT, February Comex gold futures are trading $1282.30, down $3.60 or -0.29%.

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The day-to-day price action in gold is hard to predict at this moment because of the position-adjustments being made by Treasury and stock market investors. This action is bearish for gold. However, at the same time, the U.S. Dollar is weakening, and this tends to drive up demand for gold. Over the short-run, anything goes for gold which raises the possibility of a volatile two-sided trade.

If you’re a longer-term gold investors then your primary focus should be on the direction of the U.S. Dollar and value.

It was less than a week ago that gold was hitting a six-month high on uncertainty over Fed policy, the shedding or risky assets and stock market volatility. These factors created a bullish tone in the gold market.

On Friday, Fed Chair Jerome Powell reversed his hawkish tone when he said the Fed was not on a preset path of rate hikes and will be sensitive to the downside risks markets are pricing in.

By reversing his hawkish tone, Powell seems to have eliminated the fear of continued weakness in the stock market and a U.S. recession. Since these two factors were driving gold higher, taking them out of the equation is encouraging recent gold buyers to take profits and trim positions.

The remarks by Powell also made gold appear to be overpriced and in need of a correction back into a value area. This move may be taking place at the moment which suggests prices are headed into three possible value levels at $1268.50, $1258.60 and $1251.40.

Economic News

The major event on Wednesday is the release of the Fed’s December meeting minutes at 1900 GMT. The minutes could move the markets especially if they offer clues as to the timing and the number of interest rate hikes in 2019.

To some, the information in the minutes will be stale news since Federal Reserve Jerome Powell reversed his hawkish tone on Friday when he said the central bank will be patience when considering rate hikes this year and slow down the process of reducing its balance sheet. This could turn it into a non-event since there are likely to be few surprises.

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