Gold is trading lower early Tuesday, mostly in reaction to the stronger U.S. Dollar. The Greenback is being supported by a weaker Euro, a bearish outlook for commodities due to the plunge in crude oil prices and on hopes a U.S.-North Korean summit was back on track.
At 0714 GMT, August Comex Gold futures are trading $1300.60, down $2.10 or -0.16%.
Gold is being pressured as the dollar index inches towards its highest level since 2017. The Euro, which is heavily weighted in the U.S. Dollar Index, is trading at a 6 ½ month low against the U.S. Dollar.
Investors are dumping the Euro due to weakening economic conditions in the Euro Zone and political turmoil in Italy. Investors are expressing their grim outlook for the country by dumping government debt. This is driving short-term interest rates through the roof. This is usually an indication that the market see major trouble ahead,
Investors believe the country is headed towards another election, which will essentially decide the fate of the Euro as the country’s currency.
Gold prices could continue to retreat further throughout the week if the Euro continues to slide, boosting the U.S. Dollar. Gold is a dollar-denominated asset so when the dollar rises, it loses value.
There are still a lot of investors holding long Euro positions and conditions in Italy could worsen if the credit agencies decide to downgrade its debt. This could spike the Euro lower and the Dollar higher, possibly triggering a steep drop in gold prices.