Price of Gold Fundamental Daily Forecast – Pressured by Firm Yields, Increased Demand for Risk

Gold futures are trading lower on Tuesday after an early session rally failed to draw enough buyers to support the move. Firmer Treasury yields, a slightly better U.S. Dollar and increased demand for higher risk assets is helping to limit gains. Traders are also responding to the relative calmness following yesterday’s tariff retaliation by China to similar action by the U.S. on Friday.

At 10:05 GMT, June Comex gold is trading $1298.70, down $3.10 or -0.24%.

Gold prices surged on Monday to a one-month high on what some analysts attributed to “safe-haven” buying in response to a steep plunge in U.S. equity markets. I’m not sure that was the case. I believe gold investors placed bets on the possibility of an escalating trade dispute between the U.S. and China leading to a rate cut by the Federal Reserve later in the year. This move would weaken the U.S. Dollar and lead to increased demand for dollar-denominated gold futures.

If you look at today’s early action, you’ll see that 10-year Treasury notes are lower, which means yields are inching higher. The USD/JPY is trading higher, which means investors are selling the so-called ‘safe-haven” Japanese Yen and U.S. stock index futures contracts are trading higher, signaling the return of buyers.

If this price action continues then gold should give back some of yesterday’s gains. Old school thinking says gold rallies during times of geopolitical turmoil, but new school thinking says that gold prices are controlled by interest rates.

I saw a report earlier today that said China, the largest foreign U.S. creditor, may dump treasuries to counter the Trump administration’s hardening trade stance. Some see this as bullish for gold, but the move would drive Treasuries lower, which means yields would rise. If yields rise then this should put pressure on gold futures.

Today is another light economic report day, in the U.S., FOMC Member Williams is scheduled to speak along with FOMC Member George. Reports include the NFIB Small Business Index as well as Import Prices.

If Treasury yields continue to recover, the dollar continues to firm and demand for risky assets increases then gold is likely to retreat back into a short-term retracement zone at $1296.80 to $1291.30.