Price of Gold Fundamental Daily Forecast – Looking for Volatile Two-Sided Trade

Gold futures are trading steady to lower early Friday as investors continue to eye the price action in the stock market and the direction of U.S. Treasury yields and the U.S. Dollar.

At 0923 GMT, April Comex Gold futures are trading $1316.80, down $2.30 or -0.17%.

Gold has been receiving support from safe-haven demand as investors are buying to hedge their portfolio against market volatility. The threat of rising interest rates will help limit gains and could lead to further downside pressure, however, due to the turmoil in the stock market, gold is subject to huge volatility swings.

Forecast

The surge in U.S. Treasury yields looks to continue and this will keep a lid on gold prices due to the likelihood that real rates will be dragged up. However, if the rise in Treasury yields also drives stock prices sharply lower again then we could see some flight-to-safety buying into gold. This suggests were likely to see a volatile two-sided trade over the near-term.

Although three markets are influencing the direction of gold, the most important is Treasury yields. On Thursday, U.S. government debt yields rebounded to near four-year highs as central bank moves and strong jobs data both goaded interest rates higher.

The 10-year yield nearly surpassed a 4-year high of 2.885 percent Thursday morning Eastern time, a level that helped trigger a global sell-off in equity markets on Monday. The 30-year bond yield hit a high of 3.168 percent, its highest level since March 15, when the 30-year yielded as high as 3.177 percent.

Thursday’s price action in gold showed that rising stocks will keep pressure on the market, but the late session rise in rates and the late session sell-off in stocks, helped drive gold prices higher. This is the pattern we expect to see repeated over the near-term until Treasury yields stop rising, or stocks begin to stabilize.

If yields top out and stocks find support then gold is likely to continue to drift lower. The key area to watch is $1306.60 to $1291.50. Trader reaction to this zone will determine the near-term direction of gold prices.