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Price of Gold Fundamental Daily Forecast – Demand for Risk, Rising Treasury Yields Capping Prices

By:
James Hyerczyk
Published: Jun 4, 2020, 11:02 UTC

One positive holding gold prices in place is demand for the world’s largest gold-backed ETF, SPDR Gold Trust.

Gold

Gold futures are trading slightly higher on Thursday, after a steep decline in the previous session due to robust equities, while investors awaited the European Central Bank’s (ECB) policy decision where it is expected to announce more stimulus measures.

We’re seeing a little profit-taking in all the safe-haven assets that have lost ground this week including U.S. 10-year Treasury note futures, the U.S. Dollar Index and gold. At the same time, profit-takers are hitting the riskier commodity-linked Australian Dollar and some global equity markets.

The moves aren’t significant and they aren’t tied to a particular major overnight event. Therefore, we’re pretty confident that we’re seeing position-squaring.

At 10:40 GMT, August Comex gold is trading $1713.20, up $8.40 or +0.49%.

The bullish longer-term picture remains intact, supported by a lot of fiscal and monetary stimulus, but the short-term picture has turned bearish because demand for higher risk assets is pulling investor money out of gold.

Non-interest bearing and non-dividend paying gold looked good when rates looked like they were going negative and the stock markets were trading in a bear market, but with U.S. equity prices within striking distance of their all-time highs and Treasury yields firming, gold is losing its appeal as a safe-haven asset.

Gold is not alone, however, investors are also shedding safe-haven hedge positions placed in the U.S. Dollar and Treasury markets. Until the financial markets get back to normal, don’t expect to see a “normal” trading relationship between the U.S. Dollar and gold. During traditional times, a weaker dollar tends to drive up foreign demand for dollar-denominated gold, but not now.

We’re not likely to see a return to normal until all of the hedgers who bought the U.S. Dollar for protection are cleared out. And we assume that won’t happen until the dollar index returns to its March 9 level at 94.530.

Daily Outlook

We could see some movement with the release of the ECB stimulus decision. The source of volatility will be whether policymakers make a move on Thursday or wait until July.

Investors will also get the opportunity to react to the latest weekly jobless claims report from the U.S. at 12:30 GMT.

One positive holding gold prices in place is the world’s largest gold-backed ETF, SPDR Gold Trust. Holding rose to 1,133.37 tonnes on Wednesday, the highest since April 2013.

In order to change the trend back to up over the short-run, we’re going to need to see the start of a meaningful break in global equity markets and a plunge in Treasury yields.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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