Price of Gold Fundamental Daily Forecast – Rising Stocks, Treasury Yields Could Lead to Added Pressure

December Comex gold futures are trading slightly lower in limited price action early Monday. There was no follow-through to the downside after Friday’s sharp break, but the light volume suggests investors are still digesting the impact of the latest U.S. Non-Farm Payrolls report.

Traders are also monitoring the price action by the U.S. Dollar. September U.S. Dollar Index futures are trading firm after Friday’s upbeat jobs report drove the index off its 15-month low. This move coincided with a rise in Treasury yields. Additionally, Federal Funds futures traders increased the odds of a December Fed interest rate hike from 47 percent to 50 percent.

In other news, according to the U.S. Commodity Futures Trading Commission, hedge funds and money managers boosted their net long positions in COMEX gold for the third straight time to the highest in seven weeks in the week to August 1.

However, SPDR Gold Trust saw its holdings drop more than 7 percent in July, as investors dumped bullion for other assets like equities and led to its biggest monthly decline since April 2013.

Forecast

The key report this week is U.S. consumer inflation. However, on Monday, investors will get the opportunity to react to minor reports on Labor Market Conditions and Consumer Credit. Any reports that suggest low inflation or indicate the Fed may pass on an interest rate hike later this year will be supportive for gold.

FOMC Member Kashkari is also scheduled to speak. He is currently against the Fed increasing interest rates. In today’s speech, investors will be looking for clues that support his case for the Fed slowing down the tightening process. This would also be supportive for gold.

The CFTC data indicates that hedge funds are buying, but the SPDR Gold Trust data indicates investors are dumping gold. This may mean that the professionals are buying futures in anticipation of a future bullish event. This is probably the cheapest way to be long gold just in case something bullish occurs.

Holding physical gold is expensive. Additionally, an investor isn’t paid to hold gold. I think it’s interesting that with the stock market at or near all-time highs that some gold investors finally decided to sell their physical gold and buy higher-yielding assets at this point in the investment cycle.

I expect gold to continue to struggle as long as stocks remain firm. Don’t expect a strong rally or a breakout to the upside unless there is a steep sell-off in the stock market. Rising yields and a firmer U.S. Dollar could also exert downside pressure on gold.

There is light at the end of the tunnel however. If Friday’s U.S. consumer inflation report comes out bearish then gold prices will firm and may even erase all of the losses caused by last Friday’s U.S. jobs report.