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James Hyerczyk
Comex Gold

After trading in an unusually tight range for nearly two weeks, gold futures surged to the upside late last week. It’s hard to pinpoint the reason for the price action last week. We do know that U.S.-China trade relations had something to do with the sideways action that held prices in a range.

We also know that uncertainties over Brexit rattled investors at times last week. We suspect the rise in the U.S. Dollar, higher Treasury yields and stronger demand for risk influenced the trade. However, we’re not too sure how much the widely expected Fed rate cut this week persuaded investors to buy because it had been telegraphed for weeks.

Last week, December Comex gold settled at $1505.30, up $11.20 or +0.75%.

Actually, all of the aforementioned factors at times had a hand in the spike up in prices and the spike down. We suspect that the slow eight day rangebound trade has something to do with the jump in volatility at the end of the week, but we’re not convinced it was all real buying. A lot of the movement had to do with low volume, thin-trading conditions and buy stops being triggered.

The fresh uncertainties over Brexit were probably a bullish influence, while the positive chatter about a U.S.-China trade deal kept a lid on any rallies. Traders expect the Fed to cut on October 30, but are more interested in whether there will be another cut in December.

Given the offsetting events, it’s hard not to wonder if all we saw last week were some fund or computer-driven algorithms taking advantage of the low volume to run the market both up and down.

I don’t think we saw safe-haven buying in gold because of Brexit concerns. If investors were really worried about Brexit, we would’ve have seen similar price action in the Treasury markets and the Japanese Yen. Additionally, we wouldn’t have seen the stock market surge to nearly all-time highs.

Weekly Forecast

This week should be a busy week for gold traders because of geopolitical factors, economic news and central bank activity.

The geopolitical factors driving the price action will be Brexit and trade relations between the U.S and China. Both economic powerhouses may even announce an agreement on phase one of their current partial trade deal. This could be bearish for gold.

Traders will also get the chance to react to Consumer Confidence data on Tuesday; the ADP Non-Farm Employment Change and the Advance GDP on Wednesday; Personal Spending on Thursday; and the U.S. Non-Farm Payrolls report and ISM Manufacturing PMI report on Friday.

The major event will be the Fed’s interest rate decision and release of its latest monetary policy statement on Wednesday. Traders have priced in a 25-basis point rate cut for weeks so it should be no surprise if they do cut. The surprise will be if they don’t cut. This would be bearish for gold prices.

I don’t think a Fed rate cut will have an influence on gold prices. However, if policymakers strongly hint toward a December rate cut then gold could pick up a bid.

The jobs report and the ISM Manufacturing PMI data shouldn’t have much of an influence on prices if the Fed has already committed to the rate cut in December.

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