Gold hit its lowest level since August 8 on Tuesday in reaction to a stronger U.S. Dollar which rose against a basket of currencies. Despite lower equity markets, gold buyers failed to show up to support the market. This suggests we could be looking at further liquidation until we get more geopolitical risk and uncertainty in the world. Other data shows that overall physical demand is down to multi-year lows with no real demand from China or India.
February Comex Gold futures settled at $1264.90, down 12.80 or -1.00%.
Gold was pressured once again by a firm U.S. Dollar. The dollar continued to strengthen on optimism surrounding the overhaul of the U.S. tax system. Investors expect the final deal will be struck before Christmas, but if there are any snags or delays then the process may continue into 2018. At this time, most investors are betting on a Christmas date which is why they are supporting the dollar and selling gold futures.
In other news, the U.S. trade deficit widened in October to a nine-month high on record imports that reflect steady domestic demand, the Commerce Department reported on Tuesday. Also, non-manufacturing economic activity slipped more than anticipated in November after a surprise expansion in the previous month.
Forecast
A slightly lower U.S. Dollar and weak U.S. stock indices are helping to give gold futures a boost early Wednesday. At 0354 GMT, February Comex Gold futures are trading $1268.80, up $3.90 or +0.31%.
Gold is getting a little boost from concerns about a possible U.S. government shutdown. This may be helping to offset optimism about progress on tax reform legislation. Gold investors, worried about a government shutdown, are saying that the Democrats may be trying to take advantage of a battle within the Republican Party over keeping the government open.
Although gold traders are closing tracking the progress made by U.S. lawmakers to pass a bill that will overhaul the American tax system, they also appear to remain cautious in view of further uncertainties over the outcome of the Brexit talks and Friday’s partial U.S. government shutdown should negotiations fail.
Additionally, the U.S. House and Senate lawmakers still have to hash out differences and agree on a final bill to send to Trump.
The trend is down in gold, however, it may be ripe for a short-covering rally. The S&P 500 Index closed lower for a third day on Tuesday. This may be a sign that the market is getting ready for a meaningful correction. Gold may get a boost if the Dow and the S&P 500 Index sell-off hard.