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James Hyerczyk
Comex Gold

Gold futures are trading nearly flat on Friday, helped by a rebound in U.S. equity markets and a softer U.S. Dollar. Firmer U.S. Treasury yields may be helping to put a lid on gains. We’re basically seeing position adjustments to yesterday’s volatile stock market performance. It may actually take several sessions before gold traders can figure out the direction of the next major move. This is because of the number of variables fueling the price action at this time.

At 10:11 GMT, August Comex gold is trading $1740.80, up $1.00 or +0.06%.

On the bullish side of the equation, longer-term buyers are celebrating the news that the U.S. Federal Reserve intends to hold interest rates near zero until at least the end of 2022. This news is also underpinning the market over the short-run.

However, there are still other factors that could put a lid on prices. Yesterday’s stock market plunge is one of them.

On Thursday, gold rallied early on the back of the dovish Fed comments and lower demand for risky assets. Buyers couldn’t hold onto those gains, however, as stock losses became so steep that investors had to move money into the safe-haven U.S. Dollar. The stronger U.S. Dollar then weighed on foreign demand for gold.

Furthermore, since gold is a store of value, investors often use it to raise cash when money is needed to meet stock market margin calls and cover extreme losses.

So essentially, the next major move in gold will hinge on whether the stock market can turn around or whether it gets routed again like it did in March.

If the stock market remains steady to higher, then look for gold to trade in a range since it is getting some support from lower interest rates and the prospect of additional fiscal and monetary stimulus.

However, in my opinion, downside risks in gold will increase if the stock market crashes like it did in March. The weaker the stock market gets, the more cash investors will need to meet margin calls and cover losses. And they may have to sell some of their gold positions to raise the cash.

These are the moves we’ll be looking at over the near-term so we expect to see a choppy, two-sided trade in gold.

Basically, stock market up, and gold trades sideways. Stock market down, and gold prices could weaken.

You may want to take a few days off from trading to see how the stock market trades and whether the number of COVID-19 cases continue to rise. A second wave of coronavirus cases is the known unknown. Will gold plunge on another shutdown of the economy? Or will it go through the roof? We can’t tell right now.

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