Gold Firms as Dollar Retreats Amid Weaker U.S. Producer Inflation Data

Gold futures are trading nearly flat on Wednesday, despite the stronger U.S. Dollar. The December Comex Gold futures contract actually traded higher for a second day, reaching a high of $1233.10, before pulling back to $1226.60, up $2.10 or +0.17%. Gold is getting a boost from mixed-to-lower U.S. equity indices, but the rally has been capped by rising U.S. Treasury yields and the stronger Greenback.

U.S. Dollar and Forex

The December U.S. Dollar Index posted a two-sided trade on Wednesday before moving higher. Rising U.S. Treasury yields are helping to underpin the futures contract, but a weaker-than-expected government report on Producer Inflation is putting a lid on any rallies. The report actually pushed the index lower at one point in the trading session before buyers came in to drive the market back to the plus side.

The USD/JPY rallied to its highest level since June 1, hitting a high of 109.751, before pulling back to 109.20. Technical factors as well as weak government data are contributing to the mid-session weakness. The charts indicate there is room to rally to 111.44 over the near-term, but the price action suggests investors aren’t willing to buy as aggressively at current price levels.

A lower close today will create a potentially bearish signal that could encourage investors to pare positions over the next few days.

The EUR/USD weakened on Wednesday as investors reacted to the widening interest rate differential that is currently favoring the U.S. Dollar. Traders are also responding to talk of the Euro moving to parity with the U.S. Dollar.

U.S. Treasury Markets

U.S. Treasury Notes and Bonds are trading mixed on Wednesday as investors react to disappointing economic data. The yield on the benchmark 10-year Treasury Note, moved slightly lower to 2.235. The 30-Year Treasury Bond yield also drifted lower to 2.936.

U.S. Economic News

The U.S. government reported on Wednesday that U.S. Producer Prices came in unchanged in October at 0.0%. This was well below the 0.3 percent increase that had been forecast. Although the number is not enough to change the Fed’s plan to raise rates in December, it did serve as a reminder of the weakness in certain sectors of the economy. This is something that has been raising concerns at the Fed all year.

Industrial Production for October was also unchanged while the Home Builders/Wells Fargo Housing Market Index showed sentiment held steady. Finally, mortgage applications fell 9 percent in reaction to the sharp rise in interest rates since the election.

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James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.