Price of Gold Fundamental Daily Forecast – Steepening Yield Curve Weighing on Gold Prices

Gold futures are under pressure on Wednesday amid a rising interest rate environment, a firmer U.S. Dollar and strong demand for risky assets. Meanwhile, investors appear to be squaring long positions ahead of a key speech by U.S. Federal Reserve Chairman Jerome Powell on Thursday. He is expected to reveal a historic monetary plan to revive the pandemic-hit economy to a virtual group of major central bankers.

At 12:33 GMT, December Comex gold is trading $1909.60, down $13.50 or -0.70%.

Some traders are saying the U.S. Dollar is exerting the most pressure on gold prices, claiming that Powell’s speech has already been priced into the market. The mixed assessment is being attributed to those who believe the Fed is has limited tools with which to work.

Policymakers can’t raise rates or they will kill the recovery, and they can’t move to negative rates because that too can have a negative effect on the economy and possibly lead to deflation. Powell is expected to say the Fed’s biggest challenge is low inflation and that the central bank may implement some moves that could eventually send inflation over the 2% benchmark level.

Weighing further on gold is a surge in demand for riskier assets. This is being helped this week by optimism about U.S.-China trade relations.

Perhaps helping to slow down the selling pressure in gold is the fact that interest rates remain low and that central bankers are willing to be accommodative should problems arise. Furthermore, there are lingering doubts about the strength of the economic recovery. On Tuesday, a survey from the Conference Board showed U.S. consumer confidence unexpectedly hit a six-year low in August.

Treasury Yield Curve Steeper on Trade Deal Reassurance

Another factor weighing on gold prices is the steepening of the yield curve. Longer-term U.S. Treasury yields were higher on Tuesday and Wednesday and a closely watched part of the yield curve steepened as traders moved into riskier asset classes on reassurance that a U.S. –China trade deal would continue.

Investors are moving money out of guaranteed U.S. Treasury bonds and into riskier assets. Investors are also betting on higher inflation. Who wants to hold onto an investment that may pay less than the inflation rate if the Fed allows it to move higher?

Daily Forecast

The dumping of Treasury bonds and notes is driving up Treasury yields and this is making the U.S. Dollar a somewhat more attractive asset. A stronger U.S. Dollar tends to dampen foreign demand for dollar-denominated gold.

The fear for gold traders is that the Fed’s plan to increase inflation may actually drive up interest rates and the U.S. Dollar.