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James Hyerczyk
Comex Gold and US Dollar

Gold futures are trading better on Friday shortly after the regular session opening and the U.S. Advance GDP report at 12:30 GMT. The results of this report could set the tone of the day since it will likely have an influence on the Federal Reserve’s interest rate and monetary policy decisions on July 31.

At 12:05 GMT, December Comex gold futures are trading $1433.20, up $5.70 or +0.39%.

Gold prices are trading higher despite slightly firmer U.S. Treasury yields and a stronger U.S. Dollar Index, which tend to pressure demand for the dollar-denominated asset.

On Thursday, gold prices whipsawed in response to the European Central Bank’s (ECB) monetary policy decision and comments from ECB President Mario Draghi.

ECB Keeps Rate Cut on Hold

In its monetary policy statement, the ECB said it expects its benchmark interest rates to remain “at their present or lower levels” at least through the first half of 2020. This change in the language from previous statements was also a suggestion that rate cuts could be coming in the near future.

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Draghi Offers Mixed Message

The EUR/USD fell to a two-year low after the ECB’s change in guidance. Additionally, the German 30-year bond yield hit a record low of 0.167%. However, both the Euro and German bond rebounded enough to turn higher for the session after Draghi suggested that some members of the ECB weren’t convinced on certain aspects of a possible stimulus package.

“Draghi told CNBC’s Annette Weisbach that all ECB members agreed that further stimulus was needed, though there were differences regarding the various elements of any program. ‘We had a broad discussion,’ he said, ‘Whenever we have a package so complex as this, you’d expect that people have different nuances about the different parts of the package.’”

Draghi also said in his press conference that the risk of a recession in the region was low, adding further to his mixed message and driving the EUR/USD even higher.

Daily Forecast

Given yesterday’s reaction by gold traders to the strong recovery in global yields, the direction of the gold market on Friday is likely to be determined by the direction of Treasury yields. The catalyst behind the movement in Treasurys will be the U.S. Advance GDP report.

Traders expect the report to show the economy grew by 1.8%. This would be down from the previously reported 3.1%.

A stronger-than-expected number should drive yields higher. This would make the U.S. Dollar a more attractive investment, while pressuring dollar-denominated gold.

A weaker-than-expected GDP number will solidify a rate cut by the Fed next week. This could weaken yields and the U.S. Dollar, while driving up demand for gold.

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