Price of Gold Fundamental Daily Forecast – Gives Back Gains as Jump in Yields Signals Low Confidence in Fed

Gold futures are trading lower on Thursday, shortly after the New York opening after giving back earlier gains. The market is being pressured by a sharp rise in U.S. Treasury yields during the overnight session. The move drove up the U.S. Dollar, which dented demand for dollar-denominated gold.

At 13:56 GMT, April Comex gold futures are trading $1719.20, down $7.90 or -0.46%. This is down from $1754.20.

The benchmark U.S. 10-year Treasury yield rose to 1.74% for the first time since January 2020, while the dollar recovered from a two-week low against its peers, rising nearly 0.3%.

Fed Sets the Tone

To recap yesterday’s events that sparked today’s higher spike in Treasury yields, the U.S. Federal Reserve said the U.S. economy was on track for its fastest expansion in nearly 40 years, but the central bank pledged to keep its ultra-easy monetary policy stance despite expected inflationary pressure.

Although the Fed is getting more optimistic about the economy, which could keep the pressure on gold, according to some, by not addressing the jump in yields more aggressively, the central bank may be losing the trust and confidence of bond market investors that it will be able to handle a surge in inflation.

Fed Chair Powell reiterated that the central bank wants to see inflation consistently above its 2% target and material improvement in the U.S. labor market before considering changes to rates or its monthly bond purchases.

The Fed also said it expects to see gross domestic product grow 6.5% in 2021 before cooling off in later years and inflation rise 2.2% this year as measured by personal consumption expenditures. The central bank’s stated goal is to keep inflation at 2% over the long run.

Late Wednesday, based on the market’s reaction, it looked as if Powell had managed to convince traders that the Fed would need to see a material and sustained move upward in prices and a sharp drop in unemployment before debating changes to its current easy policy stance.

However, today’s price action suggests traders may not believe the Fed will be able to continue its easy monetary policy for a few more years as Powell indicated.

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