Price of Gold Fundamental Daily Forecast – Looking for Another Dollar Driven Day

Gold traders will be reacting to the dollar today, but the range could be tight because the Treasury market is closed so there will be no reference point for U.S. Dollar traders.
James Hyerczyk
Comex Gold
Comex Gold

Gold is trading lower on Wednesday shortly before the regular session opening. The market is trading inside yesterday’s wide range which tends to indicate investor indecision and impending volatility. The price action this week is being controlled by the movement in the U.S. Dollar.

Yesterday, gold spiked to its highest level since October 26. The move was fueled by a weaker U.S. Dollar. The greenback fell as a plunge in U.S. Treasury yields raised concerns over the strength of the U.S. economy. Today, the dollar is clawing back some of those losses.

At 1123 GMT, February Comex gold is trading $1242.80, down $3.90 or -0.30%.

One phenomenon gold traders are paying particular attention to is the inverted Treasury market. An inversion in part of the Treasury yield curve raises concerns about a potential slowdown in the U.S. economy. Nervous investors were drawn into the gold market over an inversion of the yield curve between three-year and five-year U.S. Treasury notes and between two-year and five-year notes which made the U.S. Dollar a less-attractive investment.

Although the yield curve had been tightening for some time, the inversion came as a surprise since these were the first parts of the Treasury yield curve to invert since the financial crisis, excluding very short-term debt.

Treasury experts are saying that in the initial phase of the inversion of the yield curve, investors are worried about whether there’ll be a recession. The early move often leads to aggressive selling of the U.S. Dollar. Traders also tend to overreact more to weak data than to strong data during this phase of the process.

Forecast

Gold traders will be reacting to the dollar today, but the range could be tight because the Treasury market is closed so there will be no reference point for U.S. Dollar traders.

The early price action suggests we could see a choppy, two-sided trade in the dollar which should translate into a similar pattern in gold.

Additionally, sellers have been hitting the U.S. Dollar since November 28 after Federal Reserve Chairman Jerome Powell said that U.S. interest rates were nearing neutral levels. Traders started adjusting their U.S. Dollar and gold positions at that time as they interpreted his remarks as signaling a slowdown in the pace of rate hikes.

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