Weak Dollar, Falling Treasury Bond Yields Boost Gold Over 1 Percent

Comex gold prices rose more than 1 percent on Monday, rebounding from a 9 ½ month low, as the U.S. Dollar and long-dated U.S. Treasury Bond yields retreated from recent highs. Early in the session, February Comex Gold futures surged to a high of $1200.00 before pulling back to $1193.30, up $12.20 or 1.04%.

Traders said oversold technical conditions and an overall drop in physical gold holdings in exchange traded funds (ETF) were behind the move. Holdings of physical gold in ETFs have fallen more than five percent to 54.135 million ounces since November 9, the day after the election.

The current price action suggests that gold traders have fully-priced in the Fed rate hike in December, indicating that Treasury yields may have reached a short-term peak.

Traders also said that position-squaring ahead of Tuesday’s GDP report and Friday’s U.S. Non-Farm Payrolls report may be behind the move.

Crude Oil

Crude oil prices opened lower in response to Friday’s steep sell-off, but recovered its earlier losses by the mid-session in a volatile trading session. After the early weakness, traders turned optimistic about an OPEC production deal after comments from Iraq’s oil minister. He said the country would cooperate with the group to reach an agreement “acceptable to all.”

January West Texas Intermediate Crude Oil hit a low of $45.14 earlier in the session before rebounding to trade at $47.35, up $1.29 or +2.80%. February Brent Crude Oil reached a low of $47.36, but is currently trading at $49.35, up $1.11 or +2.36%.

U.S. Dollar and Forex

December U.S. Dollar Index futures plunged early in the session, but have since clawed back to trade nearly unchanged. The dollar was driven higher by sharp rises by the Japanese Yen and Euro and a firmer trade by the commodity-linked New Zealand and Australian Dollars. The latter was also supported be strong iron ore prices. The sharp reversal in crude oil prices pressured the U.S. Dollar against the Canadian Dollar.

U.S. Stocks

The weaker dollar and uncertainty over the direction of oil prices encouraged stock market investors to take profits on Monday after the massive post-election rally. Investors also squared positions ahead of Tuesday’s U.S. GDP report and Friday’s U.S. Non-Farm Payrolls report.

There were no major economic releases today, however, investors are likely keeping an eye on the events regarding OPEC’s potential deal to limit production. The major producers may announce a preliminary deal at any time ahead of the formal meeting on November 30 in Vienna.