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James Hyerczyk
Comex Gold
Comex Gold

Gold prices are moving higher early Wednesday, helped by a weaker U.S. Dollar. The dollar is losing ground as hedgers exit positions after the new U.S. and Chinese tariffs turned out to be milder than previously expected. Gold is also trading better despite increased demand for risky assets like stocks and rising Treasury yields.

At $1208.30, December Comex Gold is trading $1208.40, up $5.50 or +0.45%.

Late Monday, President Trump imposed a 10% tariff on $200 billion worth of Chinese goods. Investors were relieved because he could have gone as high as 25%. Although Trump did say that if a deal isn’t made before the end of the year, he will raise the tariff to 25%.

China added $60 billion of U.S. products to its import tariff list in retaliation for Trump’s new tariffs. However, this was also perceived as soft by investors because some expected Beijing to go after the supply chain and limit exports on raw materials and electronic components.

Forecast

The direction of the gold market today is likely to be largely determined by the direction of the U.S. Dollar. If long dollar hedgers continue to reduce positions then gold is likely to remain underpinned throughout the session.

Gains are likely to be limited by rising Treasury yields and technical resistance areas.

U.S. Treasury yields are hovering near four-month highs on Wednesday. Investors are looking past the latest escalation in the U.S.-China trade conflict. Bond traders are increasing bets the Federal Reserve will raise U.S. short-term interest rates into 2019. Ultimately, rising rates should limit the upside potential for gold because they make the U.S. Dollar a more attractive investment. Demand for gold tends to drop when the dollar rises because it is a dollar-denominated investment.

Technically, the key area to watch today is $1205.90 to $1215.10. Trader reaction to this zone will tell us if the bulls or the bears are in control. Trigger points for breakouts to the upside come in at $1218.00 and $1220.70. On the downside, the key bottoms to watch are $1192.70 and $1189.50.

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