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James Hyerczyk
Comex Gold

Gold futures are trading lower on Friday as the U.S. Dollar regained lost ground, although doubts over the speed of the global economic recovery and the promise of more fiscal stimulus continue to underpin prices.

At 09:05 GMT, December Comex gold is trading $1954.10, down $10.20 or -0.52%.

Prices surged early in the session on Thursday after the Euro rose, sending the U.S. Dollar Index lower, while driving up foreign demand for dollar-denominated gold. Investors bought the single currency after the European Central Bank left policy unchanged on Thursday.

Weak U.S. economic data also drove the U.S. Dollar lower to the benefit of gold prices. A report showed the number of Americans filing new claims for unemployment benefits hovered at high levels last week, suggesting the labor market recovery from the COVID-19 pandemic was stalling.

The early session rally came to an abrupt stop and prices retreated amid an intraday rebound in the U.S. Dollar Index. Safe-haven demand was behind the dollar’s recovery.

The dollar began its intraday ascent after the U.S. stock market gave up its earlier gains, increasing the greenback’s appeal as a safe-haven asset. This then weighed on dollar-denominated gold.

This move was likely triggered after the U.S. Senate on Thursday killed a Republican bill that would have provided around $300 billion in new coronavirus aid, as Democrats seeking far more funding prevented it from advancing.

Daily Forecast

Notice that I didn’t mention U.S. Treasury yields in my analysis. This is because I am not seeing their usual influence on gold prices. This is probably because of next week’s two-day Federal Reserve and monetary policy announcements. Gold traders may be looking for the clarity that only the Fed can provide. Obviously, the announcement of more monetary stimulus would be bullish but gold traders aren’t sure that’s in the Fed’s bag of tricks at the moment.

Thursday’s price action also suggests that gold traders are closely monitoring the fiscal stimulus negotiations in Washington. Gold went up ahead of the vote in Congress as they bet on a positive outcome, and gold prices fell when the chance of deal was killed.

As far as gold’s relationship with the U.S. Dollar, well it appears to be normal at this time. In other words – dollar up, gold down and vice-versa. Additionally, the dollar’s status as a safe-haven asset has been rising since the stock market started to plunge.

And speaking of the stock market, another steep sell-off there could pressure gold prices if it leads to margin calls. Stock market investors may be encouraged to sell their gold positions to cover losses or to meet margin calls.

On the data front, U.S. consumer inflation numbers are due later today at 12:30 GMT. This report could give traders some clarity on the speed of the U.S. economic recovery.

Ultimately, we’re going to be watching and reacting to risk sentiment and its influence on the U.S. Dollar to determine the direction of gold prices today.

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