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Comey Testimony and ECB Policy Outcome Prompt Profit Taking

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Two key events occurred today which have had an adverse impact on gold prices, being cited as underlying factors for today’s dramatic selloff. Beginning in Europe, the European Central Bank (ECB) held a monetary policy meeting which resulted in unchanged interest rates. This put selling pressure on the Euro dollar and was, therefore, favorable for the U.S. dollar.

As reported by Pound Sterling, “The Governing Council now expects policy rates to remain at their present levels – and no longer at present or lower levels – for an extended period of time and – no change here – well past the horizon of the net asset purchases," says Holger Sandte at Nordea Markets.

However, it was the testimony of James Comey that had the greatest influence on the financial markets today. As damaging as his testimony was to the current administration, market participants concluded the information contained in his testimony, both written and oral, would not result in impeachment proceedings for Donald Trump.

In MarketWatch, trading desk columnist Nigam Arora penned an article titled “Investors conclude Trump won’t be impeached, and the smart money dumps gold.” In this article, he cites fluid changes in cash flow as Comey’s testimony progressed throughout the day. Investor money which had been moving into long gold positions before the release of the written testimony yesterday, as well as oral testimony today, began to liquidate (sell) these positions as the real possibility of impeachment diminished. At the same time, he noted that money flows began to increase into U.S. equities moving this complex higher.

As of 415 Eastern Standard Time, gold futures are trading at $1281.40, a net loss of almost $12 on the day. Although gold is trading well off of the intraday lows of $1273.50, the precious metals markets are currently immersed in a round of profit-taking. It is also clear that the recent highs that fell just below $1300 per ounce are a current resistance area for gold pricing.

With all of that in mind, it must be noted that market participants are reacting to a fluid market that could turn at any moment. However, at least for the near term, we could see more downside pressure in gold and silver pricing, and a continuation of the dynamic rise in U.S. equities.

Wishing you as always, good trading,

Gary S. Wagner - Executive Producer