Gold prices are inching higher early Wednesday, mostly in response to a weaker U.S. Dollar. The dampening of trade concerns is encouraging safe-haven buyers to shed the greenback after last week’s rise. This is helping to drive foreign demand for dollar-denominated gold.
At 0838 GMT, December Comex gold is trading $1220.60, up $2.30 or +0.19%.
The dollar was weakened by increased Chinese stimulus which helped take the edge off wider concerns about the worsening Sino-U.S. trade dispute.
Gold traders showed no response to the news that the United States will begin collecting 25 percent tariffs on another $16 billion in Chinese goods on August 23, the U.S. Trade Representative’s office said on Tuesday as it published a final tariff list targeting 279 imported product lines.
Traders also failed to respond to the news that companies doing business with Iran will be barred from the United States.
In Europe, the European Parliament agreed to ease tough new liquidity rules for banks trading gold, marking a success for the London Bullion Market Association’s campaign to revise the plans.
Finally, according to the World Gold Council, gold-backed ETFs saw outflows in North America, Europe and Asia in July as a strong U.S. Dollar helped weaken gold prices.
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Gold is in a long-term downtrend, but short-term, it’s rangebound. Hedge fund and money managers are net short according to the latest U.S. government data, but this week’s price action suggests a little accumulation may be taking place. We won’t know for sure until Friday when the new data is released.
I wouldn’t be surprised by a short-covering rally. The daily ranges have been tight which suggest a breakout may be imminent. Overtaking $1228.60 will be a positive development, however, the main trend will remain down until $1244.70 is taken out.
The price action in the dollar is driving all the movement in gold. Although it is giving back some of last week’s gains, it is likely to continue to be supported by expectations of rising interest rates in the U.S. and this should keep a lid on gold prices.
Gold is not likely to make a meaningful move until Friday with the release of the latest data on consumer inflation. Other than this report, it is going to take surprise news to encourage the shorts to cover their positions enough to fuel a meaningful short-covering rally.