Price of Gold Fundamental Daily Forecast – Pressured by Rising U.S. Rates, Increased Appetite for Risk

The threat of rising interest rates and increased demand for higher risk assets is helping to drive gold prices lower on Tuesday. Investors are even ignoring a sharply lower U.S. Dollar which tends to drive up demand for the safe-haven asset.

At 0925 GMT, June Comex Gold is trading $1346.10, down $4.60 or -0.34%.

The surprise move in gold is coming on the back of yesterday’s counter-intuitive rally which took place despite a strong performance in the equity markets.

Forecast

With the threat of retaliation for last week-end’s U.S.-led bombing of Syria diminishing daily, there doesn’t seem to be an urgency to buy gold at this time especially since it looks like the stock market has absorbed a lot of the recent negativity in the marketplace. However, I do think that appetite for risk will be the primary driver of gold prices over the near-term.

Today’s price action also suggests gold traders may have absorbed the prospect of a weaker dollar. The threat of rising interest rates, however, continues to weigh on gold as traders continue to debate whether the economy is strengthening enough to warrant two or three more rate hikes in 2018.

Yesterday on CNBC, New York President William Dudley said the Federal Reserve will likely gradually raise interest rates three or four times in total this year and could aim to eventually raise the policy rate to about 3 percent. This may have been enough to encourage gold investors to lighten up on the long side.

Additionally, the U.S. yield curve reached its flattest level in over a decade on Monday after the White House said President Trump would nominate Richard Clarida as Federal Reserve Vice Chairman, adding another hawkish voice at the central bank.

Furthermore, gold traders may also be anticipating more hawkish talk from the U.S. central bank on Tuesday with several key Federal Open Market Committee members scheduled to speak throughout the day.

So I have to conclude that the biggest influences on gold today are likely to be the direction of U.S. interest rates and appetite for risk. However, the pace of the selling may slow as investors continue to remain concerned about geopolitical events including a possible escalation of the war in Syria, the potential trade war with China and retaliatory action by China and Russia to fresh U.S. sanctions on the two countries.