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James Hyerczyk
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Comex Gold

Gold futures finished sharply lower last week despite weaker U.S. Treasury yields after the U.S. Dollar posted its biggest weekly gain in more than a month. Traders said the move in the greenback was fueled by aggressive position-squaring ahead of a Federal Reserve policy meeting this week.

Last week, August Comex gold futures settled at $1879.60, down $10.20 or -0.54%.

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The weakness in gold came as a surprise because the markets anticipate another dovish monetary policy statement from the U.S. Federal Reserve when it concludes its two-day meeting on June 16.

The selling pressure on gold came even as U.S. inflation data last Thursday exceeded market expectations.

10-Year Treasury Yield Hits 3-Month Low

Treasury yields it a 3-month low last week as investors shrugged off the 5% annual jump in inflation reported in the previous session and appeared to buy the Federal Reserve’s argument that the price increases will be temporary.

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Reopening US Economy Heats Up Consumer Inflation; Labor Market Recovery Gaining Traction

U.S. consumer prices rose solidly in May, leading to the biggest annual increase in nearly 13 years as a reopening economy boosted demand for travel-related services, while a global semiconductor shortage drove up prices for used motor vehicles.

The pandemic’s easing grip on the economy was also underscored by other data from the Labor Department on Thursday showing the number of Americans filing new claims for unemployment benefits fell last week to the lowest level in nearly 15 months.

Weekly Outlook

The price action in gold and Treasuries suggests cash is moving into the debt markets as investors increase bets on a dovish Fed. The rally in the U.S. Dollar could be temporary but as long as the dollar remains strong, gold is going to have a hard time mounting a rally.

It may not be only position-squaring ahead of the Fed meeting driving the dollar higher, but also the weaker Euro. Last week, European Central Bank (ECB) officials sounded a dovish, which drove the single-currency higher and contributed to the rise in the U.S. Dollar Index.

The Fed’s two-day policy meeting will likely dominate investor behavior in the gold market this week.  Although the central bank is not expected to take any action, its forecasts for interest rates, inflation and the economy could move the Treasury yields, the U.S. Dollar and Gold.

Fed Chairman Jerome Powell speaks to the press after the central bank issues its statement at 18:00 GMT on Wednesday, June 16. He is expected to affirm the Fed’s commitment to easy policy. However, concerns over inflation and how the Fed could react is likely to influence market direction, especially after a hotter-than-expected consumer inflation reading for May was reported last Thursday, CNBC reported.

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