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Price of Gold Fundamental Daily Forecast – Rising Rates, Euro Worries and Trade War Concerns are Today’s Market Drivers

By:
James Hyerczyk
Published: May 18, 2018, 10:11 UTC

Besides rising U.S. interest rates, gold could be pressured on Friday by further weakness in the Euro. The single-currency is headed for its fifth successive weekly decline versus the dollar, in what would be a first for the currency since 2015, as political uncertainty in Italy continued to worry investors.

Comex Gold

Gold futures are trading lower early Friday, pressured by rising U.S. Treasury yields and a rebound in the U.S. Dollar.

At 0950 GMT, June Comex Gold futures are trading $1286.40, down $3.00 or -0.23%.

Comex Gold
Daily June Comex Gold

Renewed geopolitical tensions over North Korea may be encouraging some buying. Additionally, there are also worries over an escalation of tensions between the United States and China over trade issues. However, unless these stories lead to elevated concerns, rising interest rates will be the main driver of the bearish price action.

Helping to support the climb in interest rates was a pair of strong U.S. economic reports. On Thursday, the Labor Department said new applications for U.S. jobless benefits increased more than anticipated, but the number of Americans on unemployment fell to its lowest level since 1973.

Initial claims for state unemployment benefits rose 11,000 to a seasonally adjusted 222,000 for the week-ended May 12, the Labor Department said on Thursday. Economists were looking for a rise to 215,000 in the latest week.

Also on Thursday, the Philadelphia Fed Index, a measure of manufacturing activity in the district, came in at 36.4 for April, higher than the 21.1 level expected by Wall Street economists.

Gold was pressured on Thursday, when the yield on the benchmark 10-year Treasury note and the yield on the benchmark 30-year Treasury bond rose to new multiyear highs as a streak of solid U.S. economic reports continued.

The yield on the benchmark 10-year Treasury note climbed to 3.122 percent Thursday, its highest market since July 8, 2011, while the yield on the 30-year Treasury bond hit 3.248 percent, its highest level since July 13, 2015.

Additionally, short-term rates also topped multiyear highs. The yield on the two-year Treasury note reached 2.598 percent, its highest since August 2008, and the yield on the five-year Treasury note hit 2.957 percent, its highest since June 2009.

Forecast

Besides rising U.S. interest rates, gold could be pressured on Friday by further weakness in the Euro. The single-currency is headed for its fifth successive weekly decline versus the dollar, in what would be a first for the currency since 2015, as political uncertainty in Italy continued to worry investors.

Gold traders should also continue to monitor developments in U.S. – China trade negotiations. On Thursday, the two economic powerhouses kicked off the second round of trade talks in the hopes of averting a global trade war.

There are no major economic reports today, but traders will get the opportunity to react to comments from FOMC members Mester and Brainard. Traders will be looking for comments on inflation, wage growth, the labor markets and expectations for further rate hikes including the timing and number. At this time, the markets are pricing in two more rate hikes this year. Three would send gold sharply lower.

The daily chart identifies $1296.20 as resistance and $1247.20 as the next major downside target.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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