Short-sellers continue to dominate the gold market early Wednesday, driving the precious metal to its lowest level in 17 months, while putting it in a position to challenge the January 3, 2017 daily chart bottom at $1184.00.
At 0747 GMT, December Comex Gold futures are trading $1195.70, down $5.00 or -0.42%.
The catalyst behind the selling pressure is the stronger U.S. Dollar, which is weakening foreign demand for the dollar-denominated asset. The dollar is being boosted by a drop in demand for higher risk currencies like the Australian and New Zealand Dollars as well as a plunge in the Euro, which is falling on concerns over European banks’ exposure to Turkey.
The financial turmoil in Turkey is the dominate story, with investors fearing the worst, while moving money away from gold and parking it in safe-haven assets like the dollar, Japanese Yen and U.S. Treasurys.
In other news, holdings in SPDR Gold Trust, the world’s largest gold-backed ETF, fell 1.01 percent to 776.65 tonnes on Tuesday. Holdings have fallen to their lowest since February 2016 and down about 11 percent from its peak in April.
There are U.S. economic reports today, but the primary focus for investors today will remain on the U.S. Dollar and the financial crisis in Turkey. Although the Turkish Lira has stabilized, many believe that this is just the calm before another storm hits the currency.
Turkish President Tayyip Erodgan seems to want to play ball with U.S. President Trump by announcing tariffs against U.S. imported goods. However, this is likely to be a losing battle because if he continues to anger Trump, he is likely to flip the switch and hit the much smaller country with additional tariffs from the U.S. This could raise tensions further increasing the amount of money flowing into the U.S. Dollar, while triggering further weakness in gold.
Gold could be helped if the Euro can turn around. The single-currency is weighted at about 57% of the Dollar Index. A steep recovery by the Euro could reverse the dollar lower. This would likely trigger a short-covering rally in gold. However, sellers would likely prevent gold from changing its trend to up.
The major U.S. economic reports today are Core Retail Sales and Retail Sales. This is followed by the Empire State Manufacturing Index.
Minor reports include Preliminary Nonfarm Productivity, Preliminary Unit Labor Costs, Capacity Utilization Rate, Industrial Production and Business Inventories. Investors will also get the opportunity to react to the NAHB Housing Market Index and TIC Long-Term Purchases.
Investors will be looking at today’s reports to gauge any negative impact the trade war is having on manufacturing and industrial production.