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James Hyerczyk
Comex Gold

Gold prices are falling on Monday, erasing nearly all of Friday’s gains as investors reacted to a jump in demand for risky assets and a surge in U.S. Treasury yields. The U.S. Dollar is also rising against a basket of major currencies, leading to lower foreign demand for dollar-denominated gold.

At 11:07, February Comex gold is trading $1463.20, down $9.40 or -0.64%.

The early catalyst behind the weakness in gold is another sign of global economic growth following reports of an expanding Chinese factory sector over the weekend. Meanwhile, investors prepared for a Treasury auction, while continuing to monitor the uncertainty surrounding U.S.-China trade talks.

Unexpected Expansion in Factory Activity

An unexpected expansion in factory activity during November in China, spurred investors into the higher-yielding equity markets and reduced the interest in safe-haven bullion.

A private survey of Chinese factory activity in November came in stronger than expected on Monday, with the Caixin/Markit manufacturing Purchasing Managers’ Index for the month rising to 51.8.

Data released on the weekend showed factory activity in China rising more than expected. The official Purchasing Managers’ Index (PMI) was at 50.2 in November, according to China’s National Bureau of Statistics.


Treasury Yields Move Higher Ahead of Auctions

U.S. government debt prices were lower Monday morning as traders monitored U.S.-China trade talks. At 11:19 GMT, the yield on the benchmark 10-year Treasury note, which moves inversely to price, was higher at around 1.843%, while the yield on the 30-year Treasury bond was also higher at around 2.283%. The rise in yields helped make the dollar a more attractive investment, pressuring gold prices.

Additionally, the U.S. Treasury is set to auction $84 billion in 13 and 26-week bills.

U.S.-China Trade Relations Watch

Chinese state media reported Sunday that Beijing wants a cancelation of tariffs for a phase one trade deal. There is no clear indication of when both countries will be able to sign an agreement and last week saw fresh tensions between Washington and Beijing after President Trump signed legislation supporting protesters in Hong Kong.

Daily Forecast

There’s uncertainty over the trade deal at the start of the new week, but this is being offset by China’s solid manufacturing reports. Furthermore, if financial market traders saw a major problem developing, they’d be buying Treasurys, thereby lowering interest rates and making gold a more attractive investment.

Later today, investors will get the opportunity to react to the latest news on U.S. Final Manufacturing PMI, ISM Manufacturing PMI, Construction Spending and ISM Manufacturing Prices.

The ISM Manufacturing PMI is the most important report. It is expected to come in at 49.2. Anything under 50 will indicate contraction. Over 50 will signal expansion.

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