Price of Gold Fundamental Weekly Forecast – Rising Interest Rates Make Gold Less-Desirable Investment

Gold fell victim to surging U.S. Treasury yields, a stronger dollar and the easing of geopolitical tensions, falling sharply lower last week.

June Comex Gold futures settled at $1291.30, down $29.40 or -2.23%.

The yield on U.S. 10-year Treasury note hit a new multiyear high last week, returning to a level not seen since 2011.

The 10-year yield briefly hit 3.128 percent, its highest level since July 8, 2011 when the note yielded as high as 3.184 percent. The 30-year bond yield also briefly hit a new high; it topped 3.2640 percent overnight, its highest level since October 3, 2014 when the 30-year yielded as high as 3.276 percent.

The U.S. Dollar put in a stellar performance against a basket of major currencies last week, bolstered by solid U.S. economic data, rising U.S. Treasury yields and a weak performance in the Euro. Gold prices weakened after the Greenback hit a five-month high and finished the week with five consecutive higher closes.

Gold traders also kept an eye on issues with the renewed sanctions on Iran, the cancellation of the meeting between North and South Korea and the ongoing trade negotiations between the United States and China, however, they didn’t raise enough concerns to support the market.

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Forecast

Strong economic data in May has also weighed on gold prices including last week’s U.S. Retail Sales report. This week, investors will get the opportunity to react to the FOMC Meeting Minutes on Wednesday, Core Durable Goods Orders and a speech by Fed Chair Jerome Powell on Friday.

The Fed minutes should contain no surprises especially after the hawkish comments from several Fed officials last week.

Loretta Mester, president and CEO of the Federal Reserve Bank of Cleveland expressed support for the gradual increase in U.S. interest rates.

John Williams, president of the Federal Reserve Bank of San Francisco said that the Fed’s era of market hand-holding is nearing an end and that he thinks the time is approaching to phase out forward guidance.

Federal Reserve Bank of Atlanta President Raphael Bostic says he’s aware of the dangers of an inverted yield curve, which in the past has been viewed as a sign of impending recession.

Federal Reserve Bank of Dallas President Robert Kaplan cautioned against speeding up the pace of interest-rate increases by the U.S. central bank, in part due to concerns over a narrowing spread between short-term borrowing costs and longer-term yields.

Robust data in the United States has pushed yields higher as investors bet that the Federal Reserve will stay the course to raise rates three times this year. Rising inflation, which threatens Treasury prices because it erodes the purchasing power of their fixed payments, puts upward pressure on rates.

After the Fed already approved a one-quarter point-hike in March, the market is now pricing in a 95 percent chance of a June increase, and a 72 percent chance for September.

Rising rates put pressure on gold prices because investors are looking for a return on their money and gold pays neither a dividend nor interest.

Gold has two overcome two levels before we can say the sentiment is shifting to the upside. The first is $1296.20. The second is $1311.40. Otherwise, it appears to be on a path towards the December 12 bottom at $1247.20.

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