Price of Gold Fundamental Daily Forecast – Strong US Economic Data Pressures Gold PricesThere are some periods when gold doesn’t follow the U.S. Dollar, but gold’s negative correlation with Treasury yields is pretty reliable.
Gold futures closed lower on Friday, helping to erase all of its weekly gains, preventing a third straight week of advances. The U.S. Dollar Index fell, but this didn’t help gold prices. Gold was pressured by firm Treasury yields in reaction to solid U.S. economic data.
On Friday, June Comex gold futures settled at $1777.80, down 4.20 or -0.24%.
Trading Derivatives carries a high level of risk to your capital and you should only trade with money you can afford to lose. Trading Derivatives may not be suitable for all investors, so please ensure that you fully understand the risks involved, and seek independent advice if necessary. A Product Disclosure Statement (PDS) can be obtained either from this website or on request from our offices and should be considered before entering into a transaction with us. Raw Spread accounts offer spreads from 0.0 pips with a commission charge of USD $3.50 per 100k traded. Standard account offer spreads from 1 pips with no additional commission charges. Spreads on CFD indices start at 0.4 points. The information on this site is not directed at residents in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
We know that gold is a dollar-denominated assets and tends to rise when the U.S. Dollar weakens, but in this case, the dollar index was being pressured by a stronger Euro. The dollar itself wasn’t weaker. The Euro got an extra late-day lift following an earlier boost from an upbeat survey of purchasing managers. The U.S. Dollar was actually supported by strong manufacturing PMI data, but not to the extent of the Euro’s support.
Strong Economic Data Out of US and Europe
Markit’s preliminary U.S. manufacturing purchasing manager’s index for April came in at 60.6, slightly ahead of estimates from economists surveyed by Dow Jones. The composite came in at 62.2. The readings for manufacturing, services and the composite index were all at a record high for Markit’s flash series.
The Euro Zone’s recovery from its pandemic-induced economic downturn was much stronger than expected in April as the service industry adapted to lockdowns and made a surprise return to growth, a survey showed.
IHS Markit’s flash Composite Purchasing Manager’s Index, seen as a good guide to economic health, rose to a nine month high of 53.7 from March’s 53.2, confounding expectations in a Reuters poll for a dip to 52.8. Anything above 50 indicates growth.
Both sets of data indicate a strengthening global. The jump in the numbers out of Europe was particularly encouraging.
With Europe facing a fresh wave of coronavirus infections governments have reimposed strict curbs to contain the spread, forcing some businesses to close and encouraging citizens to stay home. That meant the economy was expected to recover at a much weaker rate this quarter than had been expected only a month previously, according to a Reuters poll the prior week. Instead, the data came out surprisingly strong.
Treasury Yields Firm
Trying to trade gold by following the dollar proved to be a difficult task on Friday. However, we already know that Treasury yields exert the biggest influence on gold prices. Gold correlation with the U.S. Dollar is not airtight. There are some periods when gold doesn’t follow the U.S. Dollar, but gold’s negative correlation with Treasury yields is pretty reliable.
Yields firmed on the stronger-than-expected U.S. economic data. This is what made gold a less-attractive investment. When you trade gold at this time, you always have to be asking, “Is the economic data bringing the Fed closer to tightening policy, or farther apart?” Tightening policy, whether it be reducing its bond purchases or raising rate, is a negative for gold prices.