Gold futures are trading higher on Wednesday shortly after the regular session opening. The strength is being fueled by lower Treasury yields, a weaker U.S. Dollar Index and a drop in demand for risky assets. This is the right combination for a rally today. However, gains could be limited later in the session if the dollar turns higher due to safe-haven demand.
At 12:51 GMT, June Comex gold futures are trading $1276.00, up 2.80 or +0.22%.
Technically, gold found support at $1269.00 on Tuesday, inside a major 50% to 61.8% retracement zone at $1272.70 to $1253.00 and slightly above the low for the year at $1267.30. The price action suggests that gold investors found value and were willing to step in to defend the 2019 low. The catalyst behind today’s strength are lower yields, lower stocks and a lower U.S. Dollar Index.
U.S. stock index futures are expected to open lower on Wednesday. This indicates a “risk-off” scenario could be developing. Gold could benefit from the move if investors decide to treat it as a safe-haven asset. If they decide to switch back to the dollar for protection then gold’s gains could be limited.
Dollar Index Falls on Safe-Haven Buying, Slightly Better Euro
The U.S. Dollar is trading lower against a basket of major currencies, led by a rally in the Japanese Yen and Swiss Franc, which are garnering support from safe-haven buying, due to renewed selling pressure on higher-risk assets.
The dollar could also be under pressure due to position-squaring ahead of the release of the Fed minutes from its May monetary policy meeting at 18:00 GMT. The dollar could weaken if the minutes show policymakers discussed cutting interest rates later in the year and if they discussed the economic conditions that would trigger such a move.
Gold prices could surge today if the three main influences: the dollar, yields and stocks, continue to trade lower. Gains could be limited if safe-haven buying supports the dollar.
The Fed minutes could provide support for gold if they show the Federal Open Market Committee discussed an interest rate cut and outlined the conditions that would encourage policymakers to cut rates.