Price of Gold Fundamental Daily Forecast – Bulls Head for Exits Amid Improving US-China Trade Relations

Gold futures are trading lower at the mid-session on Monday, falling victim to a stronger U.S. Dollar once again. The catalysts behind the dollar’s strength are an improving U.S. economic outlook, an easing of trade tensions between the United States and China, and the notion that the Fed has moved to aggressively in cutting rates and may have to hit the pause button in October.

At 15:26 GMT, December Comex gold futures are trading $1476.30, down $30.00 or -1.98%.

U.S. Dollar Influence

A rising U.S. Dollar is bearish for gold because the precious metal is priced in dollars. So when the dollar increases, gold becomes more expensive to foreign buyers, which leads to lower demand. At this time, the dollar is benefiting from its safe-haven appeal, a strengthening U.S. economy and a weakening global economy especially in Europe.

No Need for Safe-Haven Buying

The gold bulls have been trying to build a case for months that gold is bullish because it’s a safe-haven assets. I’ve said several times before, “What does this mean?” The markets are mostly about numbers, but “safe-haven” buying seems to be about feelings. Guess what? The market doesn’t care about feelings.

From a numbers standpoint, gold is highly correlated with Treasury yields. Lay the two charts on top of each other and you’ll see that lower rates tend to make gold a more attractive investment, while rising rates tend to drive investors out of the gold market.

The recent attack on Saudi oil production facilities and the announcement of the impeachment inquiry on President Trump were called “safe-haven” events by the gold bugs. Besides buying the top of a short-term rally last week, what did that get you?

The true safe-haven market is U.S. Treasurys and to some extent the U.S. Dollar. So if investors are looking for safety at this time, those are the two “go to” markets.

Furthermore, gold has also lost its appeal as an investment. Sure there are negative interest rates out there and the RBA and RBNZ are considering additional rate cuts, but most of these moves have been priced into gold. Additionally, gold traders are realizing that the days of aggressive rate cuts are over and that governments may start using fiscal stimulus to revitalize their economies.

Daily Forecast

The main catalyst behind the weakness in gold are the positive developments over U.S.-China trade relations as we move toward the start of trade talks on October 10-11.

If gold has any chance of rallying over the near-term then trade talks are going to have to collapse again and the trade war is going to have to escalate. Otherwise, improving relations coupled with the timely rate cuts by the Fed are likely to be supportive for the economy, and this should be enough to put a cap on gold’s gains and increase the selling pressure.