Price of Gold Fundamental Daily Forecast – Rally Stops Cold as Treasury Yields Surge

Gold futures are trading lower on Tuesday, bowing to pressure from rising Treasury yields and increased demand for higher risk assets. However, losses are being limited amid political uncertainty over Brexit.

At 0847 GMT, August Comex Gold futures are trading $1254.90, down $4.60 or -0.37%.

After rallying to its highest level since June 26, sellers have returned to put the market in a position to retrace at least 50% of its three-day rally from $1238.80 to $1266.90. Although the rally was impressive, it did not change the trend on the charts nor alter the longer-term bearish outlook that is being fueled by the hawkish outlook for interest rates by the U.S. Federal Reserve.

For weeks, bullish gold bugs have been looking for a rally due to geopolitical jitters over the trade dispute between the United States and China, but that’s not how the markets work. Many gold bulls believe that gold is a safe haven asset, but it hasn’t been for years. It is actually an investment and subject to the same laws of supply and demand like other financial assets.

It’s no longer being driven by geopolitical events, but interest rates. Since gold pays neither a dividend nor interest, it is a less-desirable asset during periods of rising interest rates. With the U.S. Federal Reserve set to raise interest rates at least two more times this year, demand for gold has plunged.

Some say it is the direction of the U.S. Dollar that is largely responsible for the movement in gold. That may be correct to the extent that gold is a dollar-denominated asset and foreign demand for it will rise and fall with the value of the dollar. However, the direction of the dollar is primarily influenced by the direction of interest rates.

This being said, due to dampened concerns over an escalating trade war between the United States and China, U.S. Treasury yields are on the rise again and the gold bears seem to be regaining control of the market after last week’s rally.

As we mentioned several times last week, gold may have been rallying because it was a holiday week in the U.S. The absence of the major gold bears may have allowed prices to rise unimpeded. Now that the major players have returned, gold may be getting ready to resume its well-established downtrend.