Gold futures are trading lower shortly after the regular session opening as investors continue to shed long positions in reaction to worries the Fed may refrain from cutting interest rates at its July 30-31 monetary policy meeting.
These fears are being driven by rising U.S. Treasury, which are helping to make the U.S. Dollar a more attractive asset. The stronger dollar is reducing demand for dollar-denominated gold futures. Falling demand for risky assets may be helping to slow down the selling pressure.
At 12:18 GMT, August Comex gold is trading $1394.90, down $5.10 or -0.36%.
Earlier today, the U.S. Dollar hit a three-week high against a basket of currencies. At the same time, Treasury yields rose as investors reduced the chances of a 50-basis point interest rate cut by the Fed this month to 5.9% from 25% last week. The chance of a 25-basis point rate cut is 98%, but this is down from the 120% it reached before last Friday’s stronger-than-expected U.S. Non-Farm Payrolls report.
In other news, hedge funds and money managers raised their bullish stance in Comex gold in the week to July 2, according to a report released by the Commodity Futures Trading Commission (CFTC) on Monday.
Furthermore, according to Bloomberg, “The People’s Bank of China (PBOC) said Monday it raised reserves for a seventh month in June, adding 10.3 tons, following the inflow of almost 74 tons in the six months through May.
Experts say the PBOC are buying gold to boost holdings as economic growth slows, trade and geopolitical tensions rise, and some authorities seek to diversify their reserves away from the dollar.
Although investors are primarily focused on Federal Reserve Chairman Jerome Powell’s Congressional testimony on Wednesday and Thursday, Fed speakers will be in focus on Tuesday starting at 12:45 GMT.
Powell is listed as a speaker, but he is actually due to make introductory remarks for Atlanta Federal Reserve President Raphael Bostic and St. Louis Federal Reserve President James Bullard at a conference in St. Louis while Quarles will make a keynote address on stress testing.
Bostic didn’t see the need for a rate cut in late May, nor did he vote for one in June. Furthermore, he seems to be siding with Powell as both indicate policymakers will “act as appropriate to sustain the recovery.”
So we have to conclude that a dovish Bostic will be a surprise for traders. If he comes across as dovish then look for Treasury yields to fall along with the U.S. Dollar. His comments could also send gold and stocks higher.
Bullard, on the other hand, is likely to maintain his dovish stance especially since he voted for the rate cut in June. He could be the source of heightened volatility if he shifts gears and hints at the need for a 50 basis point cut. His credibility could take a major hint if he suggests a rate cut in July is not necessary.