Gold prices are recovering slightly early Wednesday on short-covering in reaction to increasing geopolitical tensions over North Korea. On Tuesday, the market slid to its lowest level of the year on surging U.S. Treasury yields and a stronger U.S. Dollar.
At 0816 GMT, June Comex Gold futures are trading $1294.60, up $4.30 or +0.33%.
Gold may be getting a boost after North Korea canceled high-level talks with Seoul, denouncing military exercises between South Korea and the United States, which may have thrown into question next month’s unprecedented summit between Kim Jong Un and U.S. President Donald Trump.
On Tuesday, the U.S. Dollar firmed enough to trade near a five-month high, helped by gains in long-term U.S. Treasury yields. The dollar rally stalled last week after weaker-than-expected April U.S. inflation data was lifted on Tuesday when strong U.S. retail sales sent 10-year Treasury yields surging to a seven-year peak of 3.095 percent.
- Cancellation Between North, South Korea Heightens Geopolitical Risks
- Japanese Economy Slumps as the Dollar Roars
I’m sure you noticed over the past month or so that if you strip on the geopolitical tensions, which create uncertainty and confusion, the markets are quite efficient. For example, U.S. Treasury goes up, supporting the dollar and driving down dollar-denominated assets like gold.
Yesterday was a prime example of a well-oiled machine working properly. The benchmark 10-year Treasury note surged to its highest level since 2011 and gold touched its low for the year. That’s the way it’s supposed to work. If you get a chance, look at a 10-year Treasury note chart and a gold chart side-by-side. Stripping out geopolitical uncertainty makes trading look easy.
That was yesterday before North Korea cancelled the summit with South Korea. Now the trading games begin.
If the markets shrug-off the situation with North Korea, then gold is likely to continue to weaken if Treasury yields continue to rise and prices can stay below $1296.20 and especially $1311.40.
If North Korea becomes an issue again than losses may be limited, or gold could rally. Overcoming $1296.20 will be the first sign of profit-taking and short-covering.
Trading inside $1296.20 to $1311.40 will put gold in a neutral state.
Overtaking and sustaining a rally over $1311.40 will shift momentum to the upside, but not the trend. The trend won’t turn up unless $1326.30 is taken out.
This article was originally posted on FX Empire
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