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James Hyerczyk
Comex Gold

Gold futures are trading lower and in a position to post a potentially bearish technical pattern on the daily chart after reaching a new contract higher earlier in the session. The price action suggests sellers were waiting at the former contract high at $1413.30 to take profits after a tremendous rally this week.

At 09:30 GMT, August Comex gold is trading $1392.40, down $4.50 or -0.32%. The high for the session is $1415.40.

Early in the session, spot gold prices spiked to their highest level in five-years, underpinned by expectations of a July rate cut by the Federal Reserve and driven higher by worries over escalating tensions between the United States and Iran.

Firming U.S. Treasury yields, a recovery in the U.S. Dollar against a few major currencies and steady equity prices may have been the catalysts that encouraged gold investors to book profits.

Escalating Tensions in Middle East

Gold prices may have surged early on Friday amid concerns over escalating tensions between the United States and Iran. Investors turned defensive after the New York Times reported late Thursday that President Donald Trump approved military strikes on several Iranian targets, but surprisingly pulled back the order to launch the attacks.

According to the New York Times, Trump approved retaliatory military strikes against Iran on Thursday before changing his mind.

The New York Times, citing senior White House officials, says strikes were planned against a “handful” of targets.

“Planes were in the air and ships were in position, but no missiles had been filed when word came stand down,” the newspaper reported, citing an unnamed senior administration official.

According to the New York Times, top Pentagon officials warned a military response could result in a spiraling escalation with risks for US forces in the region.

The operation was called off after President Trump spent most of Thursday discussing Iran with his national security advisers and congressional leaders, according to AP reports.

On Wednesday the U.S. Energy Information Administration announced a bigger-than-expected drawdown in weekly inventories. Later that day, the Federal Reserve made comments that opened the door for the first rate cut in more than 10-years.

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Daily Forecast

The wildcard today is the situation in the Middle East. Gold prices are likely to rally later today if there is military action by either side, but only if the U.S. Dollar weakens. If investors decide to use the dollar as a safe-haven asset then gold prices could actually weaken. It all depends on how investors treat the dollar.

The dollar is under pressure this week because investors feel the Fed will lower rates in late July.  If investors feel the dollar is still the best currency to be in during times of geopolitical turmoil then it will rise. This will put pressure on gold prices.

So continue to monitor the direction of the U.S. Dollar today. It is controlling the direction of gold prices.

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