Price of Gold Fundamental Daily Forecast – Firming with US Dollar Starting to Lose Its Appeal as Safe-Haven

Gold futures are edging higher on Tuesday amid growing expectations of lower Treasury yields and a weaker U.S. Dollar over the short-run. Although the dollar is trading higher against a basket of currencies, it touched a two-week low earlier in the session, moving in tandem with retreating Treasury yields from recent highs despite signs of a robust U.S. economic recovery.

At 11:25 GMT, June Comex gold is trading $1735.40, up $6.60 or +0.38%.

Traders are trying to figure out the direction of the next major move in the U.S. Dollar after it failed to respond to bullish U.S. economic news from Friday and Monday. Meanwhile, gold short-sellers don’t seem to be too interested in why the dollar is doing what it’s doing, choosing instead to aggressively cover some of their positions since March 31.

“The trickiest thing for markets right now is to figure out what the dollar’s sensitivity is to good U.S. economic news,” said Erik Nelson, a macro strategist at Wells Fargo in New York.

“This is a huge question because if we’re entering a phase where the dollar is no longer a safe haven and more of a ‘risk on’ currency, that’s a big regime change.”

The dollar index wallowed at its lowest level since March 25, slipping further in early Asian trading on Tuesday following a 0.4% decline the previous session. The softer turn comes after it hit an almost five-month peak on Wednesday of last week.

The greenback has risen strongly this year, along with Treasury yields, as investors bet on a faster U.S. pandemic rebound than other developed nations amid massive stimulus and aggressive vaccinations.

But the dollar’s drop this week even after Friday’s much-stronger-than-expected monthly payrolls data was followed on Monday by the highest reading for services industry activity on record may indicate that much of the bullish outlook is priced in for now.

Daily Forecast

Gold futures could continue to rise over the short-run because the price action in the U.S. Dollar suggests the relationship between the dollar and stocks may have shifted. Investors may be no longer viewing the greenback as a safe-haven asset as equities hit record highs.

A lower U.S. Dollar is likely to drive up foreign demand for dollar-denominated gold at least over the short-run until investors decide what to do with the dollar. Obviously, that will have a lot to do with the direction of Treasury yields, which appear ready to take a breather after a two-month surge.

After showing very little response to Friday’s blowout U.S. jobs report and Monday’s robust ISM Non-Manufacturing PMI data, some investors feel that Treasurys and the dollar could be due for a near-term setback that would help gold gain back some of its recent losses.