Gold is trading slightly lower on Tuesday in limited price action. The market is trading inside yesterday’s range, indicating investor indecision and impending volatility. Gold is basically mirroring the same sideways trade in U.S. Treasurys and the U.S. Dollar. Also holding gold prices in a range is the uncertainty surrounding risk with U.S. equities lower after posting a strong reversal bottom the previous session.
At 11:19 GMT, June Comex gold futures are trading $1282.10, down $1.70 or -0.13%.
Looking at today’s headlines and the price action in gold, there are a number of supportive catalysts that could trigger a rally in gold, but only if traders recognize the commodity as a safe-haven asset. If they do then they’ll ignore gold’s negative relationship to higher Treasury yields, a firmer U.S. Dollar and strong demand for higher risk assets. The lack of buyers indicates that these three factors are still limiting investor demand for gold.
Confusion over the identity of gold is also causing the sideways trade. Is it an investment, or is it a safe-haven investment? Until that question is answered by the price action, gold is likely to remain rangebound.
As an investment, gold will become an attractive asset when Treasury yields weaken, the dollar tumbles and demand for risk drops. As a safe-haven asset, gold will attract support as an alternative to other safe-have assets like Treasurys, the Japanese Yen and the Swiss Franc. Since these assets are readily available and may offer more liquidity, traders aren’t that interested in moving money into gold for safety at this time.
Furthermore, professional traders have recently flipped positions in gold. Just a few weeks ago, professionals turned net short. As of April 30, professionals turned net long. Until they commit with big money to a side, gold could remain rangebound.
Throughout history, we’ve all been told that gold tends to turn bullish during times of geopolitical turmoil. However, those rules may have been written when gold was the only hedge available. Now there are plenty of alternatives to gold available.
Renewed uncertainty over U.S.-China trade relations, and potential military action between the U.S. and Iran, will give us a chance to test the idea that investors buy gold as a hedge against economic and geopolitical instability.
Our work indicates that a trade through $1290.90 will reflect increased demand for gold, and that a move through $1278.30 will mean lower prices over the near-term.