Gold futures are trading flat on Tuesday, underpinned by a slightly weaker U.S. Dollar, but capped by firm U.S. Treasury yields and the prospect of another rate hike by the Federal Reserve at next week’s policy meeting.
The tight trading range is also being attributed to investors moving to the sidelines ahead of upcoming major central bank meetings including the European Central Bank on Thursday. Traders are also rolling from the August futures contract into the December futures contract, which tends to weigh on the price action.
At 10:35 GMT, August gold futures are trading $1709.20, down $1.00 or -0.06%. On Monday, the SPDR Gold Shares ETF (GLD) settled at $159.14, up $0.13 or +0.08%.
Treasury Yields Slightly Higher, 2-year/10-year Curve Remains Inverted
Treasury yields are mostly higher early Tuesday as investors continue to debate the size of the next Fed rate hike and the odds of a recession. Additionally, investors may react to corporate earnings releases and choppy sentiment on Wall Street.
Most Treasury yields are edging higher as investors try to plot the path of inflation, economic growth and the Fed’s policy trajectory, stock markets and other risk assets have remained volatile. But in gold’s case, the volatility has been to the downside.
Meanwhile, the gap between the 2-year and 10-year yields remained inverted as the market weighs the possibility that the Fed will hike interest rates by 75 basis points at its meeting on July 26-27, rather than the more aggressive option of 100 basis points.
US Dollar Down but Hovering Just Under 20-year High
The U.S. Dollar hovered on Tuesday just above a one-week low reached overnight versus major peers as markets reduced the odds of a percentage-point Federal Reserve rate hike this month.
Fears about inflation and the pace of rate hikes ebbed after the University of Michigan’s survey showed inflation expectations easing to a one-year low.
Short-Term Outlook
This week’s economic calendar is on the light side but on Tuesday, investors will get the opportunity to react to reports on Building Permits and Housing Starts.
However, Federal Open Market Committee (FOMC) Member Brainard’s speech could draw the most attention later in the day at 18:35 GMT.
Brainard could join other policymakers including Fed Governor Christopher Waller, as well as regional Fed Presidents Mary Daly, Loretta Mester, James Bullard, and Raphael Bostic, who all went on record suggesting that a 75 basis-point hike would be appropriate for this month.
We’re looking for gold to remain in a tight range over the near-term, but a weak dollar and dovish Fed comments could provide some support.