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James Hyerczyk
Gold Bars and Dollar

Gold futures are trading lower on Tuesday shortly before the regular session opening. Although the equities markets are trending slightly lower in Asia, Europe and the United States, gold traders are reacting as if they expect to see a turnaround in the markets on increased demand for risky assets. The trigger for this will likely be better-than-expected quarterly earnings reports. Gold is also being pressured somewhat by a rise in the U.S. Dollar Index and a slightly reversal to the upside by U.S. Treasury yields.

At 11:32 GMT, June Comex gold futures are trading $1274.30, down $3.30 or -0.26%.

The appeal for gold as a safe-haven asset is being hurt by the attractiveness of U.S. Treasury yields and the strength of the U.S. economy which is encouraging investors to seek shelter in the dollar during times of geopolitical turmoil and when economic weakness shows up in the data of the other major countries.

This year’s strong performance in the global equity markets is also weighing on gold prices. The precious metal is now more than 5 percent off its 2019 peak touched in February. Furthermore, recent better-than-expected economic data from the United States and China have also dampened investor concerns over a steep global economic slowdown. One-by-one, geopolitical fears are being taken away, causing gold speculators to move funds into higher-yielding assets since it doesn’t pay interest or a dividend.

Some gold bulls are holding out hope for geopolitical tensions to rise in the wake of the Trump administration’s move to increase economic pressure on Iran. Others believe that a steep rise in crude oil will support the metal since gold is positively correlated to oil as a hedge against oil-led inflation. However, there is no evidence of that on Tuesday as the precious metal heads toward its lowest level since December 21.

Daily Forecast

It’s going to take a combination of events to reverse the current downside pressure on gold prices. The number one influence on gold prices at this time is the strength of the U.S. Dollar, which is making the dollar-denominated asset a less-desirable investment.

The dollar will continue to strengthen as long as Treasury yields continue to firm on the strength of the U.S. economy. Today, rates will be influenced by the Home Price Index, New Home Sales and the Richmond Manufacturing Index. Weaker than expected data could provide some support for gold.

Demand for risky assets will also influence gold prices. U.S. equity indexes are starting to turn positive in the wake of stronger earnings data from Coca-Cola and United Technologies. A surge to the upside in equities could drive gold prices lower as it approaches a key technical zone at $1272.70 to $1253.00.

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