Price of Gold Fundamental Daily Forecast – Short-Covering Rally Being Driven by Weaker Dollar, Treasury Yields

Gold futures are trading higher early Monday, helped by a weaker U.S. Dollar. The market is building on last week’s strong performance that featured a bullish technical reversal pattern. The catalyst behind the price action is Friday’s U.S. Non-Farm Payrolls report that featured robust jobs growth, but a rise in the unemployment rate and disappointing wage growth.

At 0628 GMT, August Comex Gold futures are trading $1262.30, up $6.60 or +0.53%.

The latest jobs data showed the economy added more jobs than expected in June, but a smaller-than-expected rise in average hourly earnings raised some concerns that the Fed may have to alter its plans for two more rate hikes later this year.

U.S. Treasury yields fell partly in response to the mixed U.S. Non-Farm Payrolls report. As a result, expectations of a fourth U.S. Federal Reserve rate hike later this year declined. According to the Fed Funds Indicator, investors priced in a 77 percent chance of a September rate hike, down from 80 percent before the jobs data.

So while a September rate hike is still a likely event, traders feel that without an acceleration of wage growth, a fourth hike at the end of the year is a more difficult call and the futures market shows that traders are putting the odds of a December rate hike at about 50 percent.

The drop in yields helped make the U.S. Dollar a less-desirable investment, boosting foreign demand for dollar-denominated gold.

Forecast

The direction of gold prices today should continue to be influenced by the movement in the U.S. Dollar and Treasury yields. Traders don’t seem to be too concerned about increasing demand for higher risk assets which usually put a lid on gold prices.

Besides the direction of Treasury yields, the dollar may be pressured by a strong Euro and the lifting of hedges placed in response to escalating tensions over the trade dispute between the United States and China.

The trend is still down so most of the price action is being fueled by short-covering. However, the daily chart indicates there is room to the upside with key targets $1274.40 to $1275.90.