Gold prices are trading higher on Tuesday but the market has backed off its intraday high. The precious metal is once again moving lock-step with its major influences – U.S. Treasury yields, the U.S. Dollar and the Euro. The price action suggest that a major move in one of these markets could trigger a wave of volatility in the gold market.
At 11:46 GMT, August Comex gold is trading $1432.50, up $14.30 or +1.01%.
The September 10-year U.S. Treasury market is the one I am focusing on today since the world seems to think the Fed speakers will say something that could affect yields.
At this point, I have to ask the question. If the market already priced in a 100% Fed rate cut for late July then what could a Fed member say that would possibly be bullish for Treasurys?
Therefore, I have to conclude that the risk is to the downside. This means Treasurys down and yields up. And if yields rise then so will the U.S. Dollar and a stronger dollar will encourage investors to trim some of their dollar-denominated gold positions.
Earlier today, September 10-year Treasury futures hit a high of 128’06. This was slightly below last week’s high at 128’08.5. If this futures contract starts to turn lower for the session (yields up) then look for gold prices to weaken.
Dollar traders are also watching the yields as well as the Euro. The EUR/USD is currently trading lower and in a position to form a potentially bearish closing price reversal top. If it does then the Euro could pull back for 2 or 3 days. This will drive the dollar index higher, while pressuring gold prices.
As far as the Fed speakers are concerned, don’t expect anything from Fed Chair Powell. He’s giving a speech to a foreign relations group. The other speakers, well what has changed in the U.S. economy since last Wednesday when they voted 9 to 1 to hold rates steady?
All they can talk about are “what ifs” and “if thens”. The point is the markets have already priced in a 100% chance of a rate cut. So I don’t expect the Fed speakers to move the needle much at all, which means I don’t expect much upside action in gold.
This article was originally posted on FX Empire