Price of Gold Fundamental Daily Forecast – Rising Yields, Stronger Dollar Continue to Frustrate Gold Bulls

Gold futures are down on Tuesday as Treasury yields dipped and the U.S. Dollar mounted a small recovery of its three-day setback. U.S. stock futures are also edging higher in the pre-market session, suggesting increased demand for risky assets.

Traders should continue to expect a choppy, two-sided trade throughout the week as investors position themselves ahead of Friday’s U.S. Non-Farm Payrolls report that could determine the timetable for the Federal Reserve’s tapering and interest rate plans. Going into the report, investors are pricing in a November start date for tapering and the first rate hike to occur in late 2022.

At 11:45 GMT, December Comex gold futures are trading $1757.40, down $10.20 or -0.58%.

Today’s early trade suggests gold bulls should continue to expect to be frustrated by higher yields and a firmer U.S. Dollar despite inflation and geopolitical uncertainties, fragile U.S.-China trade relations, China Evergrande’s debt crisis and a stalemate over the U.S. debt ceiling.

One reason for the frustration is that gold investors continue to look at the metal as a “safe-haven” asset when they should be looking at it as an investment. The true safe-havens are Treasury bonds, the U.S. Dollar and the Japanese Yen. This is because of liquidity. Those markets have more liquidity and are easier to navigate during times of crisis.

Gold, on the other hand, doesn’t have the same liquidity and costs a lot to store. As an investment, you can only profit if it moves higher since it doesn’t pay interest or a dividend. With interest rates expected to rise, investors are selling gold and putting their proceeds to work in an investment that pays them a return. Money has also flowed into stocks instead of gold over the longer-term because of the dividends.

Although we could see a few periodic rallies in gold over the short-run as investors may portfolio adjustments, it is going to be hard to mount a significant rally over the long-run with Treasury yields expected to trend higher along with the U.S. Dollar.

Daily Outlook

We’re looking for a two-sided trade on Tuesday with a downside bias as long as yields, the dollar and stocks continue to get bid higher. Due to concerns over the outcome of Friday’s Non-Farm Payrolls report, we’re not expecting prices to collapse, but a short-term correction of last week’s short-covering rally would be reasonable.

Today’s ISM Services PMI report, due to be released at 14:00 GMT could be the source of volatility so watch the price action and order flow at that time. Traders expect a 59.9 reading, down from 61.7.