Price of Gold Fundamental Daily Forecast – Traders Betting on Steep Central Bank Rate Cuts

Gold is being supported by the notion that an aggressive half-point rate cut by the RBNZ will open the door to even more aggressive rate cuts by other major central banks.
James Hyerczyk
Comex Gold

Gold futures are trading higher on Wednesday as the precious metal continues its trek toward the March 14, 2014 main top at $1532.40. Today’s rally is being fueled by expectations of lower global interest rates after the Reserve Bank of New Zealand (RBNZ) surprised the Forex markets with a highly aggressive 50-basis point rate cut. The move also drove U.S. Treasury yields to their lowest level since 2016.

At 11:28 GMT, December Comex gold is trading $1504.90, up $20.70 or +1.39%.

Falling Yields Underpinning Gold

Gold is being supported by the notion that an aggressive half-point rate cut by the RBNZ will open the door to even more aggressive rate cuts by other major central banks.

With New Zealand and Australian government bond yields plummeting on the news of the rate cut, U.S. Treasury traders had no other choice but to follow along, pushing the benchmark 10-year Treasury yield to its lowest level since October 2016. The increased appetite for bonds was also seen in the U.K. and Germany. Falling yields tend to drive up demand for gold.

The financial markets have priced in a 100% chance of a rate cut in September. However, St. Louis Fed President James Bullard said it was appropriate to “wait and see” how the latest rate cut impacts U.S. economic data before deciding rates should be cut again at the September meeting.

Midpoint for the Yuan Remains Key Price Driver

The People’s Bank of China set the official midpoint reference for the Yuan at 6.9996 on Wednesday, slightly weaker than what markets anticipated. This also shook up investors enough to seek shelter in gold.

Trade Talk News

White House economic advisor Larry Kudlow said the Trump administration wants to continue trade talks with China and is still planning to host a Chinese delegation for talks in September.

On the flip-side, Goldman Sachs said it no longer expects a trade deal to be struck before the November 2020 U.S. presidential election. Morgan Stanley warned that any more negative exchanges between the two economic powerhouses could tip the world economy into recession by mid-2020.

Daily Forecast

The tone is bullish today and likely to remain so as long as global yields continue to tumble. Gold traders are not reading the news. They are reacting to plunging yields. If you’re trading gold then yields should be your number one indicator.

The major upside target for December Comex gold futures is the March 14, 2014 top at $1532.40. Some nervous bulls may take profits at this level, but more aggressive bulls will play for a breakout and acceleration to the upside in the hopes of a recession in the future.

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