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James Hyerczyk
Gold Bars and Dollar

Gold futures are trading lower on Friday, shortly before the regular session opening. The market is also trading inside yesterday’s trading range after failing to follow-through to the upside following yesterday’s impressive rally. The early price action suggests investor indecision and impending volatility.

The catalysts behind today’s early weakness are a slight rebound in Treasury yields, increased demand for risky assets and a mixed performance by the U.S. Dollar. Gold is not likely to rally unless all three factors are moving lower.

At 10:21 GMT, August Comex gold futures are trading $1286.20, down $4.80 or -0.37%.

The U.S. Dollar is under some pressure against a basket of currencies after hitting a two-year high the previous session. The move is being fueled by increased expectations of a Fed rate cut later in the year. The catalysts behind the price action are weaker-than-expected U.S. manufacturing and services PMI reports for May. The reports are signaling a weakening U.S. economy, primarily due to the lingering U.S.-China trade dispute.

Although Treasury yields are up ticking on Friday, they have been under pressure lately as traders price in expectations of a slowdown in the U.S. economy and a potential rate cut by the Fed. On Thursday, four Federal Reserve officials said escalating trade tensions could threaten economic growth. An inversion by some yields also indicates that investors are concerned about economic growth.

U.S. stocks are edging higher on Friday, but concerns over an escalation of the U.S.-China trade dispute are likely to limit gains.

Like I said before, gold is likely to trade sideways to lower unless the dollar, interest rates and stocks all move sharply lower at the same time.

Daily Forecast

Given yesterday’s bullish response to the weaker-than-expected PMI data, today’s durable goods figures for April, due to be released at 12:30 GMT, could have a strong influence on gold prices. Traders are looking for Core Durable Goods Orders to rise 0.1% and Durable Goods Orders are expected to come in at -2.0%.

Lower-than-expected durable goods numbers could increase the chances of a Fed rate cut, making the U.S. Dollar a less-desirable asset. This could spike gold prices higher for a second day. Better-than-expected data is likely to pressure gold prices.

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