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James Hyerczyk
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Comex Gold

Gold futures are edging lower on Tuesday after surging to a two-week high the previous session. Although Treasury yields dipped on Monday and the U.S. Dollar retreated from earlier highs to close lower, the move were hard bearish enough to cause such a strong rally.

Following last week’s price action, we have to chalk up the move to aggressive short-covering. Mostly because there was nothing in the news or the other associated markets to warrant such a move.

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At 12:08 GMT, June Comex gold is trading $1783.00, down $8.80 or -0.49%. That’s $16.90 lower than yesterday’s high. If traders had a reason to continue to drive this market higher, they wouldn’t have allowed the futures contract to weaken enough to allow buyers back in.

Today’s early price action also suggests that even bullish traders seem to be afraid to chase the market higher. Although the market was able to blast through the major 50% level at $1788.50, it only had enough power to take out a previous top by 50 cents.

If this was supposed to be “The Move” then it failed miserably when presented with the opportunity to take out the main top with clarity and conviction. If this move was supposed to be a real buying opportunity then the market should have gone “bid” at $1798.40 and especially at $1788.50.

Since gold is trading below $1788.50 on Tuesday, we have to conclude that the rally was fueled by short-covering and buy stops rather than new buyers.

Daily Forecast

The U.S. Dollar is moving higher early Tuesday as investors weigh whether a roaring U.S. economic recovery may force interest rates higher and are looking to upcoming economic data and policy speeches for clues especially Friday’s jobs report.

If the jobs report comes in stronger than expected, then look for the market to start moving toward the idea that the Fed could move on policy sooner than projected in last week’s monetary policy statement. This would be bearish for gold prices.

The comments from several Fed speakers this week could also have an impact on gold prices because of signs of division.

On Monday, New York Fed President John Williams that the recovery so far is “not nearly enough” to prompt monetary policy tightening. This comment was potentially bullish for gold.

But on Friday, Dallas Fed President caused a stir by calling for beginning the conversation about tapering. This comment was potentially bearish. He is due to appear again at a Q&A session at 1700 GMT on Tuesday and a slew of Fed speakers are scheduled to talk in coming days.

“Non-voting hawks like Kapan and (Loretta) Mester could repeat Kaplan’s call for a conversation about tapering,” Westpac analysts said in a note.

“The Fed’s dovish influential core won’t have any of it, but expectations for solid U.S. data this week and likely more hawkish regional Fedspeak leave the dollar index positioned for more two-way price action.”

If the hawkish Fedspeak gains traction then rates could go up, the dollar could strengthen, leaving little incentive to buy gold.

For a look at all of today’s economic events, check out our economic calendar.

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