Gold futures are trading flat on Wednesday, mirroring the movement in the U.S. Dollar against a basket of currencies. The fundamentals are mixed early in the session, but they all involve the U.S. Dollar. The greenback is being influenced by the Euro, Treasury yields and safe-haven buying. The factor that exerts the most influence on traders will dictate the direction of gold prices today.
At 0904 GMT, December Comex Gold futures are trading $1201.70, up $0.30 or +0.03%.
Let’s look at a few scenarios that could take place today.
If the U.S. Dollar continues to strengthen against a basket of currencies then look for further downside pressure on gold prices. The dollar could strengthen on Wednesday, for example, if U.S. consumer inflation comes in higher than expected. This would increase the chances of a Fed rate hike in December, making the U.S. Dollar a more attractive investment.
Another steep break in the stock market could also drive up the U.S. Dollar because of safe-haven buying.
The dollar could weaken substantially if the Euro turns bullish. This would help underpin gold prices. An agreement over Brexit, for example, could generate a strong rally in the Euro.
Reports this morning are saying that the U.K. and European Union have reached a provisional agreement over Brexit. However, there are still some obstacles to overcome before the draft deal is approved by both parties.
U.K. Prime Minister Theresa May has to get her Cabinet of ministers and then a majority of parliament to approve the draft deal. And that is not likely to be easy since May still faces opposition from pro-EU members of her cabinet and parliament as well as hard Brexiteers, who are expected to be unhappy with the terms of the draft deal.
We’re looking at a possible two-sided trade today unless the dollar makes a definitive move in either direction. The Brexit news may have created more uncertainty for Euro traders because the details haven’t been released yet. Furthermore, it still has to be approved by the UK politicians.
If this weakens the Euro then look for the dollar to rise and gold to feel some pressure.
The U.S. is set to release its latest data on consumer inflation at 1330 GMT. CPI is expected to have risen 0.3% in October. Core CPI is expected to have risen by 0.2%.
If the CPI comes in higher than expected then look for the dollar to rise. This would put further pressure on gold because it would keep the Fed on track to raise rates in December. A lower than expected CPI number could fuel a short-covering rally in gold.
It’s starting to look like the biggest influence on gold on Wednesday is going to be the Euro. A bullish Euro should be bullish for gold.