Price of Gold Fundamental Daily Forecast – Stronger Dollar, Stable Treasury Yields Encouraging Profit-Taking

Gold futures are trading lower on Wednesday as prices retreated from their highest level since February 8, following a jump in the U.S. Dollar and a slight rise in U.S. Treasury yields. Traders are still reacting to yesterday’s stronger-than-expected ISM manufacturing PMI report, which raised concerns that the economy could heat up enough to encourage the Federal Reserve to tighten policy sooner-than-expected.

At 10:14 GMT, August Comex gold is trading $1899.10, down $5.90 or -0.31%.

The uptick in the U.S. Dollar is reducing foreign demand for the dollar-denominated asset, while firming Treasury yields increase the opportunity cost of holding bullion, which pays no interest or dividend.

US Manufacturing Gains Steam; Raw Material, Labor Shortages Mounting

U.S. manufacturing activity picked up in May as pent-up demand amid a reopening economy boosted orders, but unfinished work piled up because of shortages of raw materials and labor.

The Institute for Supply Management (ISM) survey on Tuesday found companies and their suppliers “continue to struggle to meet increasing levels of demand,” noting that “record-long lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect all segments” of manufacturing.

According to the ISM, worker absenteeism and short-term shutdowns because of shortages of parts and workers continued to limit manufacturing’s growth potential.

The ISM’s index of national factory activity increased to a reading of 61.2 last month from 60.7 in April. A reading above 50 indicates expansion in manufacturing, which accounts for 11.9% of the U.S. economy. Economists polled by Reuters had forecast the index rising to 60.9 in May.

Treasuries Little Changed Following Tuesday’s Slight Rise as Investors Await Jobs Data

Treasury bond yields were nearly flat in premarket trading on Wednesday, as investors digested last week’s inflation data and look ahead to Friday’s jobs report.

The yield on the benchmark 10-year Treasury note ticked slightly lower to 1.606% in premarket trading, largely flat on Tuesday’s close, while the yield on the 30-year Treasury bond was also less than half a percentage point lower to 2.288%.

Fed’s Brainard Remains Dovish

On Tuesday, Federal Reserve Governor Lael Brainard told the Economic Club of New York that the mismatch between supply and demand in some industries was temporary, and that the central bank’s goal was “to ensure that inflation expectations are strongly anchored at 2%,” according to the club’s Twitter account.

Daily Outlook

Investors will be looking to the Federal Reserve’s publishing of its Beige Book at 18:00 GMT on Wednesday, ahead of its next Federal Open Market Committee meeting.

Gold prices could become rangebound the next few days ahead of Friday’s job report. Economists expect the data to show the creation of around 674,000 jobs in May, after April’s read came in below expectations at 266,000.