Price of Gold Fundamental Daily Forecast – Pressured as Heating Up Economy Moves Fed Closer to Tightening

Gold futures are trading lower on Friday as U.S. Treasury yields held near a more than one-year high, making the U.S. Dollar a more attractive asset, while driving down foreign demand for dollar-denominated gold. The surge in bond yields is essentially making gold less-attractive because bullion doesn’t pay any interest.

At 13:20 GMT, April Comex gold is trading $1763.60, down $11.80 or -0.66%.

“While gold often benefits from expectations for more stimulus measures, given its status as an inflation hedge, government debt has turned out to be a more attractive bet for investors of late since bullion does not pay any fixed interest,” Reuters said.

In another sign that gold has fallen out of favor of investors, gold exchange-traded funds (ETFs) has seen a string of large outflows. According to reports, holdings in the world’s largest gold-backed ETF, SPDR Gold Trust, fell 0.6% on Thursday to its lowest level since May 2020.

Dollar Strengthens as US Yields Spike Higher

The U.S. Dollar rose against most major currencies on Friday, lifted by an increase in U.S. bond yields overnight.

Government bonds, and particularly U.S. Treasuries, have become the focal point of markets globally. Traders have moved aggressively to price in earlier monetary tightening than the Federal Reserve and other central banks have signaled.

10-Year Treasury Yield Jump to Highest Level Since February 2020

On Thursday, the 10-year yield jumped more than 16 basis points to 1.614%, its highest level since February 2020 and more than half a percentage point up on the end of January.

The move unnerved investors and put pressure on stock markets, with the NASDAQ suffering its worst one-day loss since October.

The spike in the 10-year yield, which is used as a benchmark for mortgage rates and auto loans, has been driven by expectations of improving economic conditions as coronavirus vaccines are rolled out, as well as fears of higher inflation.

Daily Forecast

The direction of the gold market on Friday will be determined by the movement in Treasury yields once again.

Traders will also be watching the activity in Washington where the U.S. House of Representatives is set to approve the $1.9 trillion COVID relief spending package on Friday, bolstering expectations of economic recovery.

A year ago, stimulus of this size would’ve driven gold prices through the roof. But now that the economy is showing signs of recovering, stimulus at this time is likely to bolster expectations of a surge in the recovery. Perhaps causing it to overheat. Therefore, the odds are increasing the Fed will have to start tightening sooner than expected and that is bearish for gold prices.

To sum it up. Last year, the Fed was loosening and gold went up. Now, the Fed is moving closer to tightening and gold is going down.