Corona Virus
Stay Safe, FollowGuidance
Fetching Location Data…
James Hyerczyk
Comex Gold

Gold is extending its earlier losses on Wednesday following the release of better-than-expected U.S. economic data that suggests the economy may be on the path to recovery from the impact of the coronavirus pandemic, sooner than expected.

The market has been under pressure from the get-go after global equity prices jumped to multi-month highs earlier in the session. The move highlights the growing optimism over the global economic recovery. Despite the jump in demand for riskier assets, some traders are saying losses are being limited by a weaker U.S. Dollar and worries over the civil unrest in the United States.

At 13:32 GMT, August Comex gold is trading $1709.50, down $24.50 or -1.41%.

The bottom-line is gold is losing its luster because the global economy is improving. This diminishes the chances of additional fiscal and monetary stimulus moves by the government and central banks, respectively.

Gold went as far as it could with the previous stimulus packages, hitting a multi-year high in April. However, gold hasn’t made a new high in nearly two months which indicates all the previous aid packages have been priced-in.

Furthermore, I’m not getting the relationship between the civil unrest in the United States and gold prices. An escalation of the civil unrest is not likely to drive gold prices higher unless it destroys the economy so much that the government and the Fed are forced to pump more money into the economy.

Traders are watching how the rest of the world is recovering from the coronavirus pandemic – particularly China, Australia and New Zealand – and projecting those numbers on the U.S. economy. So unless there is a major setback in the economic recovery, gold is going to have a hard time finding buyers.

I know the gold bugs are going to disagree with that statement. They’ll continue to fall back on the huge amounts of stimulus already pumped into the economy, and try to build a case for $2000 gold with it. But gold investors had their chance to drive prices into this level when the global equity markets were crashing, but they stopped buying.

Stocks are trading at a three-month high because of the stimulus, and because investors are looking forward and projecting a recovery. The gold rally in the meantime has stalled because investors are taking profits on their long positions and moving the money into higher-yielding assets.

When stocks were down and traders were pricing in negative interest rates, gold was attractive because it didn’t matter that it didn’t pay interest or a dividend to hold it.

Now that traders are looking for yield again, gold has become an unattractive asset. Investors realize that gold is an investment, and they want to get paid to hold it. Unfortunately, gold isn’t going to pay them anything to hold it.

Additionally, gold and the U.S. Dollar are losing their attractiveness as a hedge against a major recession and a stock market crash. Traders who used gold as a hedge are also trimming those positions.

Everybody seems to be unloading gold for various reasons so we expect to see further weakness until it reaches a value area. Right now, that area is $1621.90 to $1582.40.

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

Don't miss a thing!
Discover what's moving the markets. Sign up for a daily update delivered to your inbox

Trade With A Regulated Broker

  • Your capital is at risk
The content provided on the website includes general news and publications, our personal analysis and opinions, and contents provided by third parties, which are intended for educational and research purposes only. It does not constitute, and should not be read as, any recommendation or advice to take any action whatsoever, including to make any investment or buy any product. When making any financial decision, you should perform your own due diligence checks, apply your own discretion and consult your competent advisors. The content of the website is not personally directed to you, and we does not take into account your financial situation or needs.The information contained in this website is not necessarily provided in real-time nor is it necessarily accurate. Prices provided herein may be provided by market makers and not by exchanges.Any trading or other financial decision you make shall be at your full responsibility, and you must not rely on any information provided through the website. FX Empire does not provide any warranty regarding any of the information contained in the website, and shall bear no responsibility for any trading losses you might incur as a result of using any information contained in the website.The website may include advertisements and other promotional contents, and FX Empire may receive compensation from third parties in connection with the content. FX Empire does not endorse any third party or recommends using any third party's services, and does not assume responsibility for your use of any such third party's website or services.FX Empire and its employees, officers, subsidiaries and associates, are not liable nor shall they be held liable for any loss or damage resulting from your use of the website or reliance on the information provided on this website.
This website includes information about cryptocurrencies, contracts for difference (CFDs) and other financial instruments, and about brokers, exchanges and other entities trading in such instruments. Both cryptocurrencies and CFDs are complex instruments and come with a high risk of losing money. You should carefully consider whether you understand how these instruments work and whether you can afford to take the high risk of losing your money.FX Empire encourages you to perform your own research before making any investment decision, and to avoid investing in any financial instrument which you do not fully understand how it works and what are the risks involved.