Price of Gold Fundamental Daily Forecast – Decoupling from Stocks, Bonds

Gold futures continued to rally on Tuesday, underpinned by a weaker U.S. Dollar and position-squaring ahead of Wednesday’s U.S. inflation report that could offer clues on the pace of Fed interest rate hikes.

On Monday, April Comex gold futures settled at $1326.40, up $10.70 or +0.81%.

Gold seems to have decoupled from equities and bonds and is instead tracking the price action in the U.S. Dollar. Typically, gold moves in the opposite direction of stocks and interest rates but this wasn’t the case on Monday.

U.S. stock markets rose sharply yesterday as the recovery from last week’s steep sell-off continued. Meanwhile, U.S. 10-year Treasury Note yields rose to a fresh 4-year high. Both moves had no impact on gold prices.

Forecast

Gold prices are trading higher early Tuesday, mostly in reaction to strong gains in the Asian stock markets. Relative to stocks, investors appear to like gold over stocks at this time, suggesting they see value in the precious metal. Continued volatility in the equity markets might make gold a more attractive investment.

At 0929 GMT, April Comex gold is trading $1331.20, up $4.80 or +0.38%.

Position-squaring ahead of Wednesday’s key U.S. consumer inflation report is also driving the price action. According to the estimates, inflation likely rose 0.3% in January. Inflation expectations edged lower last month, dulling a year-end rise, according to a survey published by the Federal Reserve Bank of New York on Monday.

Inflation worries generally boost gold, which is seen as a safe haven against rising prices. But expectations that the Fed will raise interest rates to fight inflation make gold less attractive because it does not pay interest.

Gold seems to have established good support at $1309.00, slightly above the major 50% to 61.8% retracement zone at $1306.60 to $1291.50.

If the upside momentum continues, prices could rally into a short-term retracement zone at $1339.80 to $1347.00. Since the daily trend is down, sellers could return on a test of this zone.