Price of Gold Fundamental Daily Forecast – Dovish Central Banks Biggest Bullish Influence on Gold Prices

Gold futures hit a new high for the year early Tuesday on new concerns over a slowing global economy amid worries over the progress of U.S.-China trade negotiations. This comes ahead of a fresh round of discussions between Beijing and the United States to bring an end to the trade dispute.

At 11:20 GMT, April Comex gold is trading $1332.20, up $10.10 or +0.76%.

Gold is also getting support from a drop in U.S. Treasury yields and lower appetite for risky assets. The U.S. Dollar Index is trading mixed, but the greenback is strengthening against the Euro, Japanese Yen, Australian Dollar and New Zealand Dollar. Nonetheless, gold traders seem to be unfazed by the strength in the U.S. Dollar.

It’s hard to pinpoint the actual reason for the strength in gold. When gold rallies, the headlines usually say it was because of the weaker U.S. Dollar. When gold breaks, a stronger U.S. Dollar is blamed. However, this hasn’t always been the case lately. I think there is more too this rally than just gold’s relationship to the dollar.

My work suggests that gold is being supported because the outlook for interest rates has turned dovish. This opinion is being supported by the recent spate of lower expectations for economic growth by all the major central banks. I think the turning point for cold came in late December and again in late January when the Fed turned dovish. Remember that gold doesn’t pay a dividend or interest so when rates are falling, it tends to become a more favorable asset.

Earlier today, the Reserve Bank of Australia monetary policy minutes presented a dovish tone. This may be behind today’s rally. Furthermore, on Wednesday, the U.S. Federal Reserve will release its monetary policy minutes. Based on the price action in the gold market, it looks as if traders are expecting the Fed minutes to be dovish also.

It’s hard to keep up with the day to day changes in the fundamentals especially with the plethora of economic reports. However, if we stick with the central theme that the central banks are dovish, it will be easier to understand why gold is rallying.