Gold futures are trading higher on Tuesday shortly before the regular session opening on the back of a weaker U.S. Dollar. The greenback is being pressured by falling Treasury yields, weaker than expected economic data and the dampening of its appeal as a safe-haven asset. Speculative buying ahead of the release of the U.S. Federal Reserve’s last policy meeting on Wednesday could also be providing support.
At 12:18 GMT, December Comex gold is trading $2015.20, up $16.50 or +0.83%.
Weak U.S. Dollar Supportive
The U.S. Dollar is trading lower against a basket of currencies on Tuesday for a fifth consecutive trading day, rapidly approaching its lowest level in two years. Low yields and bleak economic data in the United States are driving investors out of the greenback and into higher-yielding currencies and into currencies of countries that are expected to outperform the U.S. economy.
On Monday, a worse than expected reading of the New York Fed’s Empire State business conditions index in August also helped traders stick to their bearish convictions for the currency.
Meanwhile, net bearish bets on the greenback rose to their largest since May 2011 last week, and spot trade in recent days suggests the position has only grown further since.
Real money and leveraged investors preferred to express their negative view on the dollar via the most traded currency pair in the world – Euro/Dollar – pushing Euro longs to a new record high in the week to August 11, latest CFTC data showed.
US Treasury Yields Edge Lower
U.S. government debt yields were lower Tuesday morning, as investors monitored a fresh batch of economic data and Treasury auctions.
Ahead of the start of regular session trading, market participants are largely focused on simmering U.S.-China tensions and ongoing concerns about the economic impact of the coronavirus pandemic.
The U.S. tightened restrictions on China’s Huawei on Monday, seeking to make it more difficult for the tech giant to obtain critical components.
Meanwhile, U.S. lawmakers remain locked in a stalemate over a potential new coronavirus stimulus deal. Democrats and Republicans are holding their respective presidential nominating conventions starting this week.
On the data front, housing starts for July, building permits for July and business leaders survey figures for August will all be released at 12:30 GMT. Additionally, the U.S. Treasury will auction $30 billion of 119-day bills and $30 billion of 42-day bills on Tuesday.
Gold has recovered a key short-term area on the daily chart, which is controlling the near-term direction of the market. Holding above $2007.10 to $1981.70 will help sustain the upside bias. The catalysts for a rally are in place – low yields, weak dollar – so we expect the market to be supported.
If there is a surprise, it will likely occur late in the session as buyers may decide to take profits and square positions ahead of Wednesday’s Fed minutes. The first sign of weakness will be a break under $2007.10. Buyers may panic a little if $1981.70 fails as support.