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

Gold traders should pay particular attention to the Euro since it is breathing on a 2-year low. If the Euro plunges then the dollar index could spike higher. This could drive gold prices sharply lower.
James Hyerczyk
Comex Gold

Gold futures are trading lower shortly before the regular session opening. The so-called “safe-haven” asset is likely being pressured by rising U.S. Treasury yields, increased demand for risky assets and a slightly firmer U.S. Dollar Index.

Overbought 10-year U.S. Treasury notes and 30-year U.S. Treasury bonds are likely responsible for the rebound in yields. On Wednesday, note and bond yields hit another multi-month low as investors piled into Treasurys on fear that the U.S.-China trade dispute would lead to an economic slowdown and a potential rate cut by the Fed later in the year. Some traders also believe that the current inverted yield curve is indicating a future recession, although this may be premature.

At 11:03 GMT, August Comex gold is trading $1280.90, down $5.50 or -0.43%.

The lack of fresh developments over U.S.-China trade relations as well as technically oversold conditions could also be supporting U.S. equity markets. This is likely pushing weak gold buyers out of the market. Perhaps they bought gold as a hedge against a stock market crash that didn’t occur.

Finally, rising yields may be providing some support for the dollar index, but gains are being limited by a firm Euro, British Pound and Canadian Dollar. The dollar is gaining strength against the Japanese Yen and the Swiss Franc as investors trim positions in these two safe-haven currencies.

It was a quiet day in the states on Wednesday. The Richmond Manufacturing Index ticked lower to 5, up from the previously reported 3, but below the 6 estimate.

Daily Forecast

At 12:30 GMT, gold investors will get the opportunity to react to a number of U.S. economic reports, but the main focus is likely to be on U.S. Gross Domestic Product (GDP).

Today’s reports include the Goods Trade Balance, Preliminary Wholesale Inventories, Weekly Unemployment Claims and Pending Home Sales.

The GDP report is a little tricky to gauge at times because technically, it is stale data. In other words, it represents the past. However, given the escalation in the trade dispute between the United States and China, this report could take on added importance.

Since the data was taken before the latest round of tariffs, which are scheduled to kick in on June 1, a number lower than the 3.2 previous read and especially the 3.1 estimate will take on added importance.

If investors believe that economic growth will worsen after the tariffs are in place then a lower number can only mean the economy is already trending lower.

If the report comes equal to or higher than expected then it will mean the economy has some wiggle room and that perhaps it will take more than the new tariffs to trigger a recession in the future.

Also, don’t be surprised if there is no reaction to the GDP report since we’re already two months into the 2nd quarter.

Gold traders should pay particular attention to the Euro since it is breathing on a 2-year low. If the Euro plunges then the dollar index could spike higher. This could drive gold prices sharply lower.

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