Price of Gold Fundamental Daily Forecast – Posting Solid Gain Despite Stronger U.S. Dollar

Gold is holding on to its gains, shortly before the regular session opening on Tuesday, despite a surge in the U.S. Dollar against a basket of currencies. This comes as a surprise because usually a stronger dollar leads to lower foreign demand for dollar-denominated gold futures.

By eliminating the usual suspects like the dollar and demand for risky assets, we’ve concluded that gold is being supported by another plunge in U.S. Treasury yields.

At 10:11 GMT, August Comex gold futures are trading $1349.10, up $6.10 or +0.45%.

The drop in Treasury yields is being driven by dovish comments from European Central Bank (ECB) President Mario Draghi at the ECB Forum in Sintra, Portugal. In a speech at the Forum, Draghi defended the tools that the organization has available, saying that its asset purchase program still has considerable headroom. Draghi also said that the ECB could cut interest rates again or provide asset purchases if inflation doesn’t reach its target.

These comments were dovish enough to drive down German bond yields as well as Treasury yields, helping to boost demand for gold. The precious metal doesn’t pay a dividend or interest, but it becomes an attractive asset during low-interest rate environments.

Daily Forecast

Gold may be up for the session, but it’s actually trading at the mid-point of its wide, two-day range. Holding inside this range will be a sign of investor indecision ahead of the start of the Federal Reserve’s two-day meeting later today.

On Wednesday, the Fed is expected to leave its benchmark interest rate unchanged. However, Fed Chair Jerome Powell and his policymakers are likely to leave the door open for a rate cut in either July or September. Fed funds futures are pointing to odds of about 20 for a June cut and about 80% for a July cut.

The timing of the first Fed rate cut in 10 years is up for debate because some investors feel the economy is strong enough to delay the move. Furthermore, these investors feel the central bank may need to see more data before making their decisions.

As it stands, the Fed is likely to issue a very dovish message, while dropping the word “patient” from its monetary policy statement. This should be enough to greenlight a rate cut in one to three months.

Gold should continue to be supported by the outlook for lower rates, but gains could continue to be limited if the dollar continues to strengthen.