Price of Gold Fundamental Daily Forecast – Pressured as Rebound from Omicron Signals Sooner Fed Rate Hike

Gold futures are plunging on Wednesday after U.S. Treasury yields turned higher overnight and the U.S. Dollar spiked to the upside against a basket of major currencies. The selling pressure actually started during yesterday’s session when speculative buyers decided to book profits after the market tested a key short-term technical resistance area.

At 11:04 GMT, February Comex gold futures are trading $1794.80, down $16.10 or -0.89%. On Tuesday, the SPDR Gold Shares ETF (GLD) settled at $168.66, down $0.71 or -0.42%.

US Treasury Yields Turn Higher Overnight

Gold edged lower on Wednesday after U.S. Treasury yields steadied following a dip earlier in the session. Higher yields raise the opportunity cost of holding non-interest paying gold, making the precious metal a less-attractive investment.

Besides the benchmark 10-year U.S. Treasury note, gold investors are also eyeing the 2-year Treasury note yield that hit its highest level since March 2020. The move was fueled by tepid demand for an auction of the notes on Monday. Meanwhile, longer-dated yields ended little changed on the day after demand for new five-year notes was also soft.

Investors have driven yields higher because they believe the Federal Reserve is closer to raising rates as the U.S. economy rebounds from COVID-19-related shutdowns and inflation surges.

Additionally, the yield curve between two-year and 10-year notes flattened as far as 71 basis points, the smallest yield gap since November 23.

Weak Euro, Japanese Yen Send US Dollar Index Higher

Gold futures weakened further overnight when the dollar rose as yields flipped higher, and the Euro and Japanese Yen dropped. A stronger U.S. Dollar tends to reduce foreign demand for dollar-denominated gold.

Investors are also starting to look past surging case of Omicron, driving up demand for riskier assets. The move suggests investors have finished liquidating their long hedges in the U.S. Dollar and are now buying the greenback on hopes for an improving economy and a sooner-than-expected rate hike by the Federal Reserve.

Daily Outlook

In addition to higher yields and a stronger dollar, the technical picture has changed with momentum shifting to the downside.

On Tuesday, February Comex gold futures ran into strong resistance inside a 50% – 61.8% retracement zone at $1817.50 to $1832.70. The subsequent profit-taking and short-selling may have created enough downside momentum to drive prices into the next key area of support at $1787.30 – $1781.00. But if $1781.00 fails to hold then look out to the downside.