Short Covering Lifts Gold As U.S. Dollar Softens

(Kitco News) - Gold futures touched a nearly four-week high Wednesday on short covering as the U.S. dollar eased, but trading was described as cautious ahead Federal Reserve minutes and as the Dow Jones Industrial Average remains within striking distance of the 20,000 level.

As of 12:15 p.m. EST, Comex February was $4.40 higher to $1,166.40 an ounce. March silver was up 9.1 cents to $16.50.

February gold traded as high as $1,168.60, its most muscular level since Dec. 9. However, the contract also remained in a relatively narrow range of roughly $12.

The gold market’s next focus will be minutes of the December meeting of the U.S. Federal Open Market Committee, due out at 2 p.m. EST. Policymakers hiked the federal funds rate by 25 basis points last month. Now, market participants will look at minutes from the meeting for clues on how aggressively the Fed might hike in 2017.

“All you’ve seen so far is a little short covering,” said George Gero, managing director with RBC Wealth Management. “Then, of course, the dollar index is taking a breather today.”

Short covering is when traders buy to offset positions in which they previously sold, or established a bearish bet. Meanwhile, the March U.S. dollar index was down 0.556 point to 102.645. Precious metals often move inversely to the U.S. currency.

“Some downside on the dollar is giving a little support to gold,” said Daniel Pavilonis, senior commodities broker with RJO Futures. “Whether that lasts remains to be seen. We have Fed minutes out later today; that (dollar weakness) could change.”

Meanwhile, the Dow remains close to 20,000, trading at 19,929.17. As the Dow approached the psychological 20,000 level in recent weeks, some investors reportedly moved toward equities and away from safe havens such as gold.

“We have to be careful,” Gero said. “We are close to 20,000 in stocks. That could be a headwind for gold.”

February gold spent the entire session above the 20-day moving average, which stands at $1,150.30. The contract traded on both sides of this the last three business days after crossing above it last week for the first time since Nov. 10. The 50-day average is still a ways above the market at $1,208.60.

Besides the upcoming FOMC minutes, traders also have a number of U.S. economic reports to digest yet this week. The ADP private-sector jobs report, initial jobless claims and Institute for Supply Management’s service-sector survey are due out Thursday, followed by the monthly nonfarm payrolls report on Friday.

By Allen Sykora of Kitco News; asykora@kitco.com