Gold Market Firms as Commodity-Linked Currencies Post Gains

Trading was light on Tuesday as most investors took to the sidelines ahead of this week’s Bank of England meeting on Thursday, August 6 and the U.S. Non-Farm Payrolls report on Friday, August 7.

There were few economic reports today. Most of the price action was being fueled by a strong rally in the Australian Dollar which helped drive up demand for other commodity-linked currencies. This helped drive down the U.S. Dollar Index. Gold and crude oil were underpinned by the price action by the dollar.

Investors have heard all the rumors about a potential rate hike by the Fed perhaps as early as September, but the price action suggests they are waiting for definitive news. The U.S. jobs report on Friday is likely to offer some clarity. Until then, however, gold may straddle a pivot price at $1089.30.

September Crude Oil rebounded on Tuesday after Monday’s steep sell-off took the market to a new low for the year. Today’s price action suggests a possible shift in momentum to the upside due to oversold technical conditions. The fundamentals remain negative. There is still a supply glut, which could continue to grow if the U.S. rig count continues to increase. Early estimates indicate that investors are looking for a 1.3 million barrel drawdown in this week’s EIA oil report.

The EUR/USD traded sideways to lower most of the session. The news was light as well as volume. The Spanish Unemployment Change report showed a decrease of 74.0K. Traders were looking for a decline of 45.6K. Euro Zone PPI was down 0.1% as expected.

Position-squaring ahead of the BoE meeting on Thursday helped underpin the GBP/USD despite a Construction PMI report which came out lower than expected. Volume and volatility could be below average until Thursday’s BoE Inflation Report and MPC Official Bank Rate Vote. Some analysts predict as many as two MPC members are likely to vote for a rate hike. This news could underpin the market.