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Price of Gold Fundamental Daily Forecast – Pressured by Firming Yields, Renewed Demand for Risk

By:
James Hyerczyk
Published: Aug 6, 2019, 11:47 UTC

Any weakness in gold on Tuesday will be fueled by increasing demand for risky assets, a rise in Treasury yields and a stronger U.S. Dollar.

Comex Gold

Gold is trading slightly better on Tuesday shortly before the regular session opening. After rallying to $1486.80 earlier in the session, traders pared gains in response to a marginal rise in Treasury yields, a firmer U.S. Dollar and increased demand for risk assets. The turnaround in the financial markets was attributed to a move by China to support its currency. This news seems to have calmed investors after Monday’s volatile trading session.

At 11:32 GMT, December Comex gold futures are trading $1478.10, up $1.60 or +0.10%.

Underpinning gold the past few sessions has been President Trump’s announcement of fresh tariffs on Chinese goods, set to begin on September 1. This news raised concerns over an escalating U.S.-China trade war and its impact on the global economy. Treasury yields plummeted on the news, making the U.S. Dollar a less-attractive asset, while driving up demand for dollar-denominated gold.

Gold accelerated to the upside on Monday after Chinese authorities let the Yuan break to its lowest level against the U.S. Dollar in more than 10 years.

This prompted President Trump to tweet, “China dropped the price of their currency to an almost a historic low. It’s called ‘currency manipulation.’ Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!”

In response to the move in the Yuan, the U.S. Treasury Department on Monday designated China a currency manipulator. Chinese officials also confirmed that it has suspended its buying of U.S. agricultural products like corn, soybeans and wheat.

Demand for gold fell early Tuesday after the People’s Bank of China (PBOC) set the midpoint for the Yuan at a level stronger than what the financial markets were expecting early Tuesday.

According to reports, the offshore Yuan pulled back from an all-time low on Tuesday after Beijing appeared to take steps to prevent the currency from weakening further. Additionally, China said early Tuesday it was selling Yuan-denominated bills in Hong Kong, in a move seen as curtailing short selling of the currency.

The financial markets reacted to the move in the Yuan in dramatic fashion. The safe-haven Japanese Yen plunged, Asian equities bounced off their lows, but more importantly, the major U.S. equity indexes turned positive for the session. All of these moves encouraged gold investors to take profits and reduce long positions.

Daily Forecast

The early price action indicates gold may be setting up for a potentially bearish closing price reversal top. Although the chart pattern doesn’t indicate a change in trend is imminent, it could trigger the start of a two to three day counter-trend break.

Any weakness in gold on Tuesday will be fueled by increasing demand for risky assets, a rise in Treasury yields and a stronger U.S. Dollar.

If China’s attempt to prop up the Yuan fails and the currency resumes its slide then look for gold to resume its rally.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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