Price of Gold Fundamental Daily Forecast – Friday’s GDP Report Likely to Determine Next Major Move

Gold prices hit a two-week low on Monday as investors leaped into the U.S. Dollar, attracted by rising Treasury yields. Since dollar-denominated gold does not pay a dividend or interest, investors tend to sell it during periods of rising interest rates. The opportunity cost of holding gold will increase, for example, if the 10-year U.S. Treasury Note rises above the psychological 3 percent level for the first time in 5 years.

On Monday, June Comex Gold settled at $1324.00, down $14.30 or -1.07%.

Fear of accelerating inflation, rising commodity prices and worries about the growing supply of government debt helped drive the 10-year yield to 2.998 on Monday. This helped make the U.S. Dollar a more attractive investment while pressuring gold prices.

U.S. Treasury yields jumped at the start of the week on signs of increasing inflation and as the Federal Reserve signaled more rate increases are to come this year. The 10-year Treasury yield stopped short of the psychological 3 percent level with some investors believing this may be the top until the government reports on first-quarter GDP on Friday.

The Fed funds futures market gave almost a 50 percent probability that the central bank would move one more time in December as of Monday morning. The CME’s FedWatch tool, a reliable gauge for the Federal Open Market Committee’s actions, assigned a probability of 48.2 percent.

In other news, the National Association of Realtors said on Monday that existing home sales rose 1.1 percent to a seasonally adjusted annual rate of 5.60 million units last month. The market for previously owned homes accounts for about 90 percent of U.S. home sales. Sales fell 1.2 percent year-on-year in March.

Additionally, the seasonally adjusted HIS Market Flash U.S. Composite PMI Output Index rose to a reading of 54.8 this month from 54.2 in March, indicating a faster upturn in business activity across the private sector. Flash Services PMI rose slightly higher to 54.4 from 54.3.

Forecast

Gold futures are rebounding early Tuesday, mostly due to oversold technical conditions. The move we are seeing is likely a combination of profit-taking, short-covering and aggressive counter-trend buying. However, gains are likely being limited by a stronger U.S. Dollar and rising Treasury yields. The easing of geopolitical tensions is also helping to cap prices.

With traders starting to prepare for Friday’s U.S. GDP report, we could see few days of counter-trend trading. This report is very important because it will influence the direction of Treasury yields.

Traders are looking for the report to show the economy grew 2.0% in the first quarter. If the report comes in higher than expected then Treasurys could surge, taking gold prices lower.

If GDP comes in below 2.0% then Treasury yields could weaken because this would likely limit the number of Fed rate hikes this year. This would be short-term bullish for gold prices.