Price of Gold Fundamental Daily Forecast – Rally Seems Overcooked Relative to Dip in Treasury Yields

Gold futures jumped more than 2% on Thursday after intraday weakness in the U.S. Dollar triggered a strong short-covering rally. Although impressive, the rally did not change the trend and was likely capped by expectations the Federal Reserve will soon start tapering its economic support.

Some say the catalyst behind the move on Thursday was likely fueled by weaker-than-expected U.S. weekly jobs numbers. Others felt the rally represented an end-of-month or end-of-quarter position adjustment.

On Thursday, December Comex gold futures settled at $1757.00, up $34.10 or -1.98%.

Besides the drop in the U.S. Dollar, traders may have also been influenced by a dip in U.S. Treasury yields. However, the size of the rally in gold relative to the size of the dip in yields suggests the move may have been exaggerated.

Mixed US Economic Data Weighs on US Dollar

Initial jobless claims climbed again last week, rising to 362,000, the Labor Department said Thursday, as hiring appeared to remain sluggish while the U.S. battles the delta variant.

Economists surveyed by Dow Jones had been expecting 335,000 new filings, the same number as the upwardly revised total from the previous week. A surge in claims from California helped account for much of the gains.

A separate report from the Commerce Department on Thursday showed the economy grew at a slightly faster 6.7% annualized rate in the second quarter, revised up from the 6.6% pace reported in August. Growth was driven by pandemic relief money from the government, which boosted consumer spending. The economy grew at a 6.3% rate in the first quarter.

US Treasury Yields Dip Following Bond Sell-Off

U.S. Treasury yields fell on Thursday following a sell-off amid inflation fears. The yield on the benchmark 10-year Treasury note slid 4 basis points 1.499%. The yield on the 30-year Treasury bond dipped about 3 basis points to 2.058%.

The 10-year Treasury yield hit 1.567% on Tuesday, with investors concerned about a longer lasting rise in prices and the prospect of tighter monetary policy.

Fed Chief Warns about Inflation Pressures

Federal Reserve Chairman Jerome Powell warned again during a Congressional hearing on Thursday that inflation pressures from the pandemic could last longer than previously expected, though he said he still believes they will be temporary.

Other Events that May Have Impacted Prices

At the same Congressional hearing, Treasury Secretary Janet Yellen again called for Congress to raise the debt ceiling, saying the results would be “catastrophic” if legislators failed to act.

Additionally, the U.S. House of Representatives passed a bill that would suspend the U.S. debt ceiling, but the measure is not expected to pass the Senate. Congress did pass a bill on Thursday that would fund the government through early December, but legislators still need to address the debt ceiling.

Short-Term Outlook

The rally on Thursday was impressive, but it didn’t take out any significant resistance levels and it didn’t change the main trend to up. Prices could retreat quickly if there is no follow-through rally.

Unless a rally in gold is fueled by a steep drop in Treasury yields, the move should be treated as a position-adjustment and not real buying. Furthermore, if the Fed is going to tighten then bearish traders are likely to seize the opportunity to short gold.