Gold futures are trading lower on Friday, shortly before the regular session opens, after an initial breakout attempt to the upside failed. Speculators bought gold early when news that US President Donald Trump tested positive for COVID-19 sent investors rushing for safe assets.
The only problem with that mindset is that gold is not a safe-haven asset, so it didn’t attract enough buyers to continue the initial rally. Instead, the money flowed into the true safe haven: Treasuries, the Japanese yen, and the US dollar.
Ultimately it all comes down to the strengthening of the US dollar. A stronger US dollar weighs on foreign demand for dollar-denominated gold.
At 09:11 GMT, December Comex gold is trading at $ 1913.10, down $ 3.20 or -0.17%.
Despite the two-way gold trade, it still persists near its peak, so it is not particularly bearish. As the initial reaction to the news about Trump’s COVID-19 infection begins to wear off, investors will once again focus on the stimulus agreement, which is a potentially bullish event.
All we can conclude at this point is to expect volatility as investors weigh the impact of the new fiscal stimulus against the increased political uncertainty caused by Trump’s health woes.
Treating gold as a follower rather than a leader will likely help your trades. Let the US dollar be the dog and gold the tail. If you trade gold out of the headlines instead of seeing how the dollar reacts to those same headlines, you are likely to be in trouble in this type of trading environment.
The next move in gold could be determined by how many members of the US government are actually diagnosed positive. Also, just because Trump tested positive is no guarantee that gold prices will rise. Earlier in the year, UK Prime Minister Boris Johnson and Brazilian President Jair Bolsonaro tested positive and those events passed without any major impact on gold.
House of Representatives Passes $ 2.2 Trillion Democratic Coronavirus Stimulus Bill
The House approved a $ 2.2 trillion Democratic coronavirus stimulus plan Thursday night, even as Democrats and the Trump administration struggle to reach an aid deal.
The bill will likely bypass the Republican Senate and become law. Senate Majority Leader Mitch McConnell has opposed the legislation as his group is reluctant to spend billions more on the federal response to the pandemic.
Daily forecast
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 non-farm payrolls and unemployment figures due at 12:30 GMT. There will also be factory orders and consumer confidence at 14:00 GMT.
The direction of the gold market in the short term will be determined by the response of the US stock market to the news of Trump’s COVID-19. Recently, we saw that a sharp breakout in equities drove investors to the US dollar, while depressing gold prices. If we follow the same pattern, gold gains could be capped.
Gold prices could get some support from weaker-than-expected labor data if they scare Senate Republicans enough to accept the recently proposed stimulus bill.
To see all of today’s economic events, check out our economic calendar.
