Gold futures are trading lower on Friday shortly before the regular session opening after an early attempt to breakout to the upside fizzled. Speculators bought gold early as news of U.S. President Donald Trump testing positive for COVID-19 sent investors scurrying for safe-haven assets.
The only problem with that thinking is that gold is not a safe-haven asset so it did not attract enough buyers to continue the early rally. Instead, money flowed into the real safe-haven – Treasury Bonds, the Japanese Yen and the U.S. Dollar.
Ultimately, it all comes down to the stronger U.S. Dollar. A stronger U.S. Dollar weighs on foreign demand for dollar-denominated gold.
At 09:11 GMT, December Comex gold is trading $1913.10, down $3.20 or -0.17%.
Despite the two-sided trade in gold, it is still lingering near its high so it’s not particularly bearish. As the initial reaction to the news about Trump’s COVID-19 infection starts to wear off, investors will go back to focusing on the stimulus deal, which is a potentially bullish event.
All we can conclude at this time is to expect volatility as investors weigh the impact of new fiscal stimulus against heightened political uncertainty caused by Trump’s health issues.
Treating gold as a follower rather than a leader will probably help your trading. Let the U.S. Dollar be the dog and gold be the tail. If you trade gold off the headlines instead of seeing how the dollar reacts to those same headlines, you’re likely to get whip-sawed in this kind of trading environment.
The next move in gold could be determined by how many members of the U.S. government are actually diagnosed positive. Additionally, just because Trump tested positive is no guarantee that gold prices will rise. Earlier in the year, U.K. Prime Minister Boris Johnson and Brazil President Jair Bolsonaro tested positive and those events passed without any major impact on gold.
House passes $2.2 Trillion Democratic Coronavirus Stimulus Bill
The House passed a $2.2 trillion Democratic coronavirus stimulus plan on Thursday night even as Democrats and the Trump administration struggle to strike a relief deal.
The bill likely will not get through the Republican-held Senate and become law. Senate Majority Leader Mitch McConnell has opposed the legislation as his caucus resists spending trillions more on the federal response to the pandemic.
Overnight, investors responded to the President’s positive COVID-19 test as expected. They sold risky assets and bought the traditional safe-havens – bonds, the dollar and the Japanese Yen.
Traders will also monitor nonfarm payrolls and unemployment figures due at 12:30 GMT. There will also be consumer sentiment and factory orders released at 14:00 GMT.
The direction of the gold market over the short-run will be determined by how the U.S. stock market responds to the Trump’s COVID-19 news. We saw recently that a steep break in stocks drove investors into the U.S. Dollar, while driving down gold prices. If we follow the same pattern then gold’s gains could be capped.
Gold prices could get some support from weaker than expected jobs data if it scares Senate Republicans enough to agree to the newly proposed stimulus proposal.
For a look at all of today’s economic events, check out our economic calendar.
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