Gold futures closed at their lowest level since the week-ending December 15 as investors continued to react the strengthening U.S. Dollar and expectations of rising U.S. interest rates. Investors showed almost no reaction to simmering fears of an escalating trade war between the United States and China.
August Comex Gold futures settled at $1270.70, down $7.80 or -0.61%.
While gold was testing a 6-month low, the U.S. Dollar was surging to an 11-month high against a basket of currencies early last week. Dollar investors reacted to geopolitical events such as the escalating tensions over trade between the United States and China, U.S. economic data and weaker Treasury yields due to a mixed performance in U.S. equity markets.
The dollar rose sharply and gold weakened on June 19 after U.S. President Donald Trump threatened more tariffs on China in an escalating trade dispute investors fear could hurt global growth. Trump threatened to impose a 10 percent tariff on $200 billion of Chinese goods, prompting a swift warning from Beijing of retaliation.
Gold fell and the Greenback rallied against a basket of currencies as traders bet on an escalating trade war forcing inflation up in the U.S. because of costlier imports, raising the prospect of more interest rate hikes.
Gold found some support late in the week after the U.S. reported weaker-than-expected manufacturing data. The Philadelphia Federal Reserve’s gauge of U.S. Mid-Atlantic business activity fell to a 1-1/2 year low, raising concern about the U.S. economy and causing some traders to book profits on bearish gold bets. These traders also said that the Philly Fed miss to the downside was a convenient excuse for traders to book profits.
Gold was also supported on Friday after a rise in the Euro and commodity-linked currencies drove the U.S. Dollar lower. The Euro was supported by improved regional economic growth data and new assurances by Italian politicians that their nation would not leave the single currency. The greenback was also pressured after OPEC producers announced a perceived modest increase in oil output. This drove up crude oil prices, helping to support commodity-linked currencies like the Canadian, Australian and New Zealand Dollars.
Gold is likely to continue to be influenced by the U.S. Dollar this week and its reaction to commodity-linked currencies. Gold could be underpinned if rising crude oil prices drive up the Loonie, Aussie and Kiwi against the Greenback. However, gains could be limited if Treasury yields stabilize or rise.
If Treasury yields continue to weaken along with demand for higher yielding assets like U.S. stocks then money may flow into gold.
Trade war concerns are an issue, but gold isn’t going to respond to the news, but rather the direction of U.S. Treasury yields and the dollar. Try not to react to the headlines until they move yields and the Greenback.
This week’s key reports include U.S. Consumer Confidence, U.S. Durable Goods and U.S. Final GDP.
August Comex Gold’s main downside target is the December 12 bottom at $1251.90. The first upside target is $1287.70 then $1300.60. I can’t really get too excited about the upside unless the buying is strong enough to overtake $1315.60.