A drop in U.S. Treasury yields due to trade issue concerns over the possible scrapping of the NAFTA helped boost gold futures on Tuesday. Treasuries fell on Tuesday as investors looked for safety amid lingering trade and mild geopolitical tensions. The yield on the benchmark 10-year Treasury note was lower at 2.913, while the yield on the 30-year Treasury bond was also in the red at 3.07 percent.
August Comex Gold futures settled on Tuesday at $1302.20, up $4.90 or +0.38%.
Geopolitical concerns also led to flight to safety buying into U.S. Treasuries which drove yields lower. Traders were reacting to a speech by Italy’s new Prime Minister Giuseppe Conte, who vowed to enact economic policies that could balloon the nation’s already-heavy debt load.
Gold traders were also paying close attention to simultaneous trade negotiations between the United States, Canada and Mexico and the U.S. and China.
White House economic adviser Larry Kudlow said that President Donald Trump is considering holding separate talks with Canada and Mexico. This raised concerns that the Trump Administration may be leaning towards scraping the entire North American Free Trade Agreement (NAFTA).
On Tuesday, China reportedly agreed to purchase almost $70 billion in U.S. agriculture and energy products from the U.S. if the latter held off on imposing tariffs against Chinese imports, according to sources cited by The Wall Street Journal.
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Gold is trading marginally lower early Wednesday. We have a mixed bag of trading data currently hitting the markets. The Euro is surging against the dollar, triggering a breakdown in the U.S. Dollar Index which is heavily weighted in the Euro.
The Dollar is trading higher against the Japanese Yen, Treasury yields are rising and appetite for risk is solid.
At 0807 GMT, August Comex Gold futures are trading $1301.70, down $0.50 or -0.04%.
If gold traders decide to turn bullish because the rally in the Euro is driving the U.S. Dollar Index lower then, they are essentially reacting to a report from Bloomberg that the European Central Bank could conclude its next policy meeting this month with a public announcement on when its quantitative easing program would end. They could be setting themselves up for a world of hurt because the dollar index is not the U.S. Dollar, it is the anti-Euro.
Pulling in stimulus is not bullish for gold. It’s a pseudo-rate hike and gold investors hate rate hikes.
I’m going to stay the course today and follow the book that says rising Treasury yields and increased appetite for risk are bearish for gold.
In order to turn bullish on gold at this time, I’d need to see a drop in yields, weaker demand for stocks and sell-off in the U.S. Dollar.