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James Hyerczyk
Comex Gold

Gold futures are trading sharply lower on Thursday and in a position to erase all of yesterday’s gains as investors are booking profits and squaring positions following the announcement of renewed trade talks between the United States and China, and the release of stronger-than-expected U.S. employment data. Sellers are also being encouraged by a rise in U.S. Treasury yields and increased demand for risky assets. A weaker U.S. Dollar may be somewhat offsetting the weakness in the gold market.

At 13:15 GMT, December Comex gold is trading $1545.20, down $15.20 or -0.97%.

Although gold touched a multi-year high on Wednesday at $1566.20, the rally continued to be tentative and more reactive to news, suggesting weak buying or short-covering was fueling the rally. Our suspicions are being confirmed with Thursday’s sell-off. The price action suggests that investors are afraid to buy strength, and may much rather prefer buying value. This means the market could be in for quite a correction of the near-term.

The price action also suggests that the market has already absorbed calls for a 25-basis point rate cut by the Fed later this month and is uncertain about future rate cuts.

Compounding the issue for bullish gold traders is the announcement of renewed trade talks between the United States and China.

Early Thursday evening, China’s Ministry of Commerce announced that the leaders of the U.S. and Chinese trade talks held a phone call in the morning and agreed to meet in early October for another round of negotiations.

Liu He, China’s top negotiator on trade, spoke with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, the Commerce Ministry statement said, according to a CNBC translation of the Chinese-language text.

In a statement to CNBC, a U.S. Trade Representative spokesperson confirmed the phone call, but not the October meeting.

Beijing said the two sides agreed to hold another round of trade negotiations in Washington, D.C., at the beginning of next month, and consultations will be made in mid-September in preparation for the meeting, the statement said.

“Both sides agreed they should work together and take practical actions to create favorable conditions for the negotiations,” according to a CNBC translation of the Chinese Ministry of Commerce statement.

The USTR spokesperson only acknowledged that both countries “agreed to hold meetings at the ministerial level in Washington in the coming weeks” and their deputy-level meetings would take place in mid-September “to lay the ground work for meaningful progress.”

Daily Forecast

The announcement of the resumption of trade talks appears to have caught the gold bulls off-guard, leading some to book profits.

Furthermore, today’s ADP private sector jobs report came in better-than-expected, making traders more nervous about Friday’s U.S. Non-Farm Payrolls report. Gold traders are concerned that another firm U.S. jobs report will reduce the chances of a series of rate cuts by the Fed. Since many gold traders had already priced in a more aggressive Fed, the positive developments are forcing them to book profits and reduce exposure.

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