Gold prices are trading lower early Tuesday after reaching their highest level since September 11 on Monday. A recovery in the U.S. Dollar is behind the price action.
At 0833 GMT, February Comex Gold futures are trading $1339.10, down $1.40 or -0.10%.
Supporting gold prices this year has been rising inflationary expectations and a steep drop in the U.S. Dollar.
The dollar has weakened as markets grow increasingly confident that a global recovery would outpace U.S. growth and prompt other major central banks, led by the ECB, to unwind their easy money strategy faster than has been expected.
Monday was a bank holiday in the U.S. We could see increased volatility and counter-trend traders as the major players return to the market.
Gold traders have been ignoring the increasing demand for higher risk, at least over the short-run. Over the long-run, rising stocks and rising Treasury yields could put a lid on gold. Gold investors should also be concerned over an oversold dollar.
If U.S. Dollar short-sellers decide to start booking profits, or if he Fed sticks with its forecast for three or more rate hikes in 2018, the Greenback could turn quickly to the upside. This could stop the gold rally in its tracks and trigger a reversal to the downside.
There is only one economic report today. The Empire State Manufacturing Index is expected to come in at 18.5, up from 18.0.
The gold/dollar relationship will be at the forefront today. We could see a setback in gold today, but the upside momentum will remain strong as long as the market remains above $1330.00.