$XAU, $GLD, $USD
Last week’s price action in gold indicates that buyers know where the value is, but the lack of conviction may be holding them back. This is likely because of the strong USD.
But, if you look at the price action on 23 May, you will see just how powerful of an influence a combination of a weaker USD, a drop in US Treasury yields and lower demand for risky assets can be on gold prices.
Keep those 3 factors in mind when trading gold because all 3, working together, have been driving the price action in gold over the short-run.
Look at gold’s performance in Y 2019.
As of Friday’s close the August COMEX gold futures contract is trading at $1289.20 oz, down $11.00 YTD. Nearly a month ago, gold hit its low for the year at $1273.20.
Last week, 10 and 30 yr US Treasury yields hit their lowest marks in about 17 months. Gold showed hardly any reaction to this news. Stocks have been under pressure since the 1st week in May, yet gold is on pace for a flat to slightly lower close for the month. This is down to the strong USD, which hit a multi-year high against a basket of 6 peer currencies last week.
While lower yields and the sell-off in stocks have helped prop up gold prices, or at least prevent a wash-out to the Southside, prices are not going to rise much unless the Buck gets hammered.
On 23 May interest rates plunged, stocks fell, the .DXY formed a closing price reversal Top and gold prices spiked higher. One event caused the price action, the release of a weaker-than-expected US manufacturing PMI report.
That evoked fear of a weakening US economy, and if the US-China trade dispute continues over the long-term then we are likely to see more weakness in the US economy.
But, do not expect any action by the Fed unless cracks start to appear in the labor market and inflation starts to weaken. If those occurs then expect the Fed to start talking about a rate cut. If policymakers start to do this then gold should start a rally.
If the Fed does decide to cut rates then USD should weaken and USD-denominated gold should move North.
Have a terrific week.