Gold prices are edging higher on Tuesday mostly in response to a mixed performance by the U.S. Dollar against a basket of major currencies. Of particular interest for gold traders is the performance in the Euro, which accounts for about 58% of the value of the dollar index. So a recovery in the Euro is likely to be supportive for gold prices because it will likely put a cap on the dollar index or even drive it lower.
At 10:31 GMT, April Comex gold futures are trading at $1315.20, up $3.30 or +0.25%.
The market is also trading inside the previous day’s range, which tends to indicate investor indecision or impending volatility. Buyers have been defending the major technical retracement level at $1306.30 since last Thursday when the market hit a low of $1306.40. Yesterday, the market found support at $1307.10. The potential trigger point for an acceleration to the upside is $1319.70.
The news services are saying that gold is drawing support from global economic slowdown worries and uncertainties surrounding U.S.-China trade talks. They are also saying that a potential government shutdown is also raising concerns. However, I can’t find direct evidence of these assessments.
In my opinion, gold is moving lock-step with the U.S. Dollar. The movement in the greenback is being fueled by a combination of events including U.S.-China trade relations and a possible government shutdown. Because of the uncertainty over these events, investors have been rushing into the safe-haven U.S. Dollar, putting pressure on dollar-denominated gold.
However, early Monday, in light of renewed optimism over a trade deal and a report indicating that Republicans and Democrats have reached a deal to avoid a shutdown, the dollar is trading mixed, helping to give gold a boost.
Traders are saying there is now a 75 percent chance that a ratcheting up of U.S. tariffs on Chinese goods at the start of March will be avoided. This estimate comes after U.S. and Chinese officials expressed hopes the new round of talks, which began in Beijing on Monday, would bring them closer to ending their months-long trade dispute.
Additionally, traders are also saying there is a 95 percent chance that another U.S. government shutdown will be dodged.
Optimism over a trade deal and the avoidance of a government shutdown are helping to drive up demand for equities and Treasury yields. Although these events usually support the dollar while pressuring gold, this time it’s the dollar that is showing signs of weakness, while gold is strengthening. The greenback is likely to weaken if investors shed their safe-haven hedges. This should support gold prices.
Please let us know what you think in the comments below.
This article was originally posted on FX Empire
More From FXEMPIRE:
- USD/JPY Fundamental Daily Forecast – Safe-Haven Appeal, Higher Yields Make Dollar Attractive Asset
- DAX Index Daily Price Forecast – DAX to Trade Positive on Improved Risk Appetite
- AUD/USD and NZD/USD Fundamental Daily Forecast – Kiwi Pressured Ahead of RBNZ Decisions
- EUR/USD Price Forecast – EUR/USD Consolidates Near Overnight Lows
- USD Rally Takes Investors by Surprise: But will the Winning Streak be Able to Continue?
- Natural Gas Price Fundamental Daily Forecast – Weekend Cold Could Trigger Short-covering Surge Over $2.774