Comex gold prices eased on Tuesday, mostly in response to higher Treasury yields and the stronger U.S. Dollar. Increased demand for higher risk, which drove up stocks, also weighed on the dollar-denominated gold market.
December Comex Gold futures settled at $1291.00, down $5.70 or -0.44%.
The primary catalyst behind the price action on Tuesday was speculation that the White House and Republicans are making progress on tax legislation or on at least a repatriation plan that would involve infrastructure spending. This set in motion the key markets that influenced the direction of gold prices.
The tax reform news helped boost Treasury yields. The benchmark 10-year Treasury note yield rose more than 2 basis points to 2.2 percent, while the two-year yield advanced to trade at 1.329 percent. Rising Treasury yields helped make the U.S. Dollar a more attractive investment.
Increased demand for higher risk assets also helped pressure gold prices. U.S. equity indexes soared on Tuesday with the Dow enjoying its biggest gain since April, on renewed hopes of U.S. tax reform.
The key story about tax reform came from Politico which reported the Trump administration and key lawmakers had found common ground on how to approach tax reform. Defense company stocks also rose after President Donald Trump’s speech on the Afghanistan War on Monday night.
Forecast
Gold is likely to continue to be influenced by the same factors that drove prices on Tuesday – Treasury yields, the U.S. Dollar and investor sentiment.
Traders will also have the opportunity to react to a series of U.S. economic reports including Flash Manufacturing PMI, Flash Services PMI and New Home Sales. Additionally, FOMC Member Robert Kaplan is scheduled to speak.
Kaplan will be delivering a speech at 1305 GMT at the central bankers’ symposium at Jackson Hole, Wyoming.
On August 17, Dallas Fed President Robert Kaplan called for patience on another rate hike, saying he’d like to see more progress on inflation moving to its 2% target.
He does, however, appear to be on board with beginning paring the Fed’s balance sheet “in the near future” – i.e. September.
These comments were perceived as dovish so he is widely expected to continue down that path on Wednesday. This may put pressure on U.S. Treasury yields, weakening the U.S. Dollar and supporting dollar-denominated gold.
This article was originally posted on FX Empire