Gold futures are trading lower on Thursday shortly before the regular session opening. The latest round of selling pressure began Wednesday morning when a rally stalled at $1238.40, while falling short of last week’s high at $1239.30. With downside momentum building, last week’s low at $1213.40 has now become a viable downside target.
At 1147 GMT, December Comex Gold is trading $1224.10, down $4.60 or -0.38%.
Pressuring gold prices on Wednesday were increased demand for risky assets and higher Treasury yields. Investors didn’t pay too much attention to the weaker U.S. Dollar.
The major U.S. equity indexes finished sharply higher on Wednesday after the mid-term elections presented no surprises and President Trump offered an olive branch to the Democrats. The indexes opened higher and maintained a steady intraday trend early in the session as the results of the election lifted a cloud of uncertainty that had been weighing on prices since early October.
Shortly after the mid-session, the indexes received a major boost that sent equity prices soaring after President Trump said he was willing to work with Democrats on policy initiatives that would help the robust economy continue growing.
The U.S. Treasury markets were more volatile than stocks. T-notes and T-bonds rallied during the early session Tuesday night/Wednesday morning before the election results were known. This was likely fueled by position-squaring and flight-to-safety buying.
Treasury traders felt the as-expected results were not likely to cause any major fluctuations in the credit markets. They went on to say that with the Democrats winning the House and the Republicans retaining control of the Senate, Congress could stall plans for further tax cuts or major spending. This could help support bond prices which have been pressured by historic deficit spending and debt issuance from the Treasury Department.
There is only one economic report today. Weekly Unemployment Claims are expected to come in at 214K, matching last week’s number. After this report, traders will pay the waiting game ahead of the U.S. Federal Reserve’s interest rate and monetary policy statement.
The Federal Open Market Committee is expected to leave interest rates unchanged. No major adjustments are expected from the meeting. However, the central bank is expected to maintain its hawkish tone in its statement, signaling a December rate hike.
Additionally, the FOMC may decide to tweak its policy by announcing it will move to increase the rate paid by the Fed for excess reserves. This is to encourage member banks to pull money out of the system, which is another form of tightening.
If there is a surprise, it will likely be on the hawkish side. The biggest surprise would be a rate hike. However, less than a month removed from a massive sell-off in the stock market and heightened volatility, the central bank is likely to stick with the program and continue to raise rates on a quarterly basis in December.
Traders should also watch the price action in the U.S. Dollar closely. The hawkish Fed is making the dollar a more attractive asset than dollar-denominated gold. Furthermore, the dollar is also garnering support from a weaker Euro. The standoff between the European Union and the Italian government is back in the news. If the situation continues to escalate then the Euro could weaken further, driving up the U.S. Dollar Index. This would put added pressure on gold prices.
Gold investors appear to have grown impatient with the market’s inability to rally through important resistance areas on the recent rally, despite enhanced stock market volatility and uncertainty leading up to the mid-term elections. With stocks recovering most of their recent losses and the election results meeting expectations, gold investors may be feeling it’s time to trim positions especially since the Fed is likely to continue to raise interest rates.
This article was originally posted on FX Empire