Gold is trading lower shortly after the regular session opening on Monday after failing to follow-through to the upside following Friday’s dramatic rebound into the close. The market continues to feel pressure from a stronger U.S. Dollar which is being supported by expectations of higher U.S. interest rates. Furthermore, increased demand for risk and the lack of follow-through to the upside by silver is also pressuring the precious metal.
At 1232 GMT, December Comex Gold is trading $1191.40, down $4.80 or -0.40%.
Traders are also saying that the Golden Week celebration in China is also weighing on prices. Volume and volatility are down because of the Chinese holiday.
Gold is being pressured by rising U.S. Treasury yields as investors continue to respond to last week’s 25-basis point rate hike by the Fed. Although the move was widely expected, investors were caught off-guard somewhat by the Fed’s strong suggestion that rates would be raised again in December and perhaps as many as three times in 2019 and once in 2020.
The Fed’s removal of the word “accommodative” from its monetary policy statement is also encouraging investors to sell gold because this suggests the central bank may turn more aggressive in its efforts to stem the rise in inflation and reduce its balance sheet.
Demand for higher-yielding assets is on the upswing following the announcement that the United States and Canada had reached a trade deal on Sunday, thereby salvaging NAFTA and creating a trilateral agreement with Mexico. U.S. equity markets are up on the news as money flows back out of gold and into stocks.
In other news, gold speculators raised their net short position by 2,923 contracts to 77,313 contracts, the largest in three week, in the week to September 25, U.S. Commodity Futures Trading Commission (CFTC) data showed.
Although the market may be subject to a few short-covering rally upswings, the fundamentals are bearish so the general direction of the gold market is expected to be down. Traders are being to look at $1200.00 as an important upside barrier and the August bottom at $1167.10 as the minimum downside target.
Later today, investors will get the opportunity to react to a slew of U.S. economic data including Final Manufacturing PMI, Construction Spending and Total Vehicle Sales. The major report is the ISM Manufacturing PMI. It is expected to come in at 60.1, slightly below the previously reported 61.3.
Federal Open Market Committee Member Bostic is also scheduled to speak. Recently, Raphael Bostic of the Atlanta Fed expressed worries about the potential for an inverted yield curve – short term rates higher than long-term rates – which could be a signal for an upcoming downturn as the inversion has preceded recessions in recent history.