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James Hyerczyk
Gold Bars and Dollar
Gold Bars and Dollar

Gold prices jumped to their highest levels since July 26 on Tuesday, with investors drawn to its safe haven appeal during a rout in the global equity markets that was fueled by rising geopolitical and economic uncertainty, including a potential showdown between the European Union and the Italian government over the country’s budget.

At 0826 GMT, December Comex Gold is trading $1234.60, down $2.20 or -0.16%.

Prices are a little lower early Wednesday, but conditions could change because U.S. stock index futures are beginning to weaken after holding steady earlier in the session.

There were no major economic releases on Tuesday with all of the price action stock market volatility related. However, Atlanta Federal President Raphael Bostic said that falling stock prices, uncertainty around global trade and other possible “headwinds’ are not enough yet to throw the U.S. economy off course or force the Fed to alter its intent for continued gradual rate increases.

Forecast

Gold is likely to continue to benefit from stock market volatility and weakness, short-covering and rising risk aversion. The potential catalysts for increasing geopolitical risk include tensions over Italian government finances and mounting pressure from the West on Saudi Arabia over the death of dissident journalist Jamal Khashoggi.

There is a slew of U.S. economic data slated for Wednesday. Nothing major but investors are likely to pay close attention to the New Home Sales figure. It is expected to come in at 627K units, down from 629K. This is important because rising interest rates have been hurting all phases of the housing industry.

Additional reports include the Home Price Index, which is expected to increase 0.3%. Flash Manufacturing PMI is expected to come in at 55.4, down slightly from the previous reading. Flash Services PMI is expected to come in better at 54.1.

At 1800 GMT, the Fed will release its Beige Book.

FOMC Members Bostic and Mester are scheduled to speak. On Tuesday, Atlanta Fed President Raphael Bostic offered an upbeat take on the economy and said he believes the central bank should press forward with interest-rate increases to keep the expansion moving forward.

“Unless the data talk me out of it, I view a continued, gradual removal of policy accommodation as appropriate until we get to a neutral policy rate,” Mr. Bostic said.

Technical factors are also controlling the direction of the market. We’re looking for an upside bias to develop on a sustained move over $1235.80. Support is $1222.70.

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