James Hyerczyk
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Comex Gold

Gold futures finished slightly lower last week with gains likely capped by increasing demand for risky assets. Helping to underpin the precious metal was a weaker U.S. Dollar. I saw no evidence of “safe-haven” demand which is an illusion anyway. The direction of gold prices is controlled by the direction of interest rates. The rest is just fairy dust.

Last week, August Comex gold settled at $1751.70, down $1.80 or -0.10%.

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I don’t care how bullish you are over the near-term, but the facts are gold futures haven’t made a new high for the year since the week-ending April 17. Additionally, it’s traded in a $1789.00 to $1668.40 range for five weeks.

One of the reasons why gold hasn’t moved higher over the short-run is that global interest rates have flattened and the global governments haven’t been throwing money into their respective economies for weeks. There initial pledges of fiscal and monetary stimulus have probably been priced into the market. Furthermore, with global equity markets clawing back more than 50% of their earlier losses, some traders have been selling out of their gold hedge positions to buy stocks.

The weaker U.S. Dollar is providing some support. This is because gold is dollar-denominated so when the greenback weakens, gold becomes more attractive to foreign buyers.

With the economy slowing recovering from the coronavirus pandemic, the dollar has been losing its appeal as a safe-haven asset. Furthermore, the Euro is strengthening and if you’re a decent Forex trader then you should know that the Euro represent 57% of the weighting in the Dollar Index. To some, this news may come as a surprise.

Weekly Forecast

If you’re serious about trading gold then stop reading the headlines and shift your focus to the September 10-year U.S. Treasury Note.

The benchmark September 10-year U.S. Treasury Note futures contact shows that interest rates hit their low the week-ending March 27. Since then, the market has remained inside a range for nine-weeks.

In my opinion, gold is likely to remain rangebound until interest rates make a move. With U.S. Federal Reserve Chairman Jerome Powell against negative rates at this time, the next move in yields could be up. And if yields begin to firm then gold prices could feel some downside pressure.

The base is in place for a rally. All that stimulus money has been supportive. But over the short-run, I think that gold is going to need a boost from a combination of lower demand for risky assets and another dip in Treasury yields. Until we see that, we could be rangebound to lower.

The other thing about lower prices is that they will create the next buying opportunity. Remember than gold is an investment. This means gold investors like to buy favorable dips. No one likes to chase a market higher.

For a look at all of today’s economic events, check out our economic calendar.

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