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Price of Gold Fundamental Daily Forecast – Treasury Yield Spike Weighing on Gold Demand

By:
James Hyerczyk
Published: Mar 12, 2021, 14:23 UTC

The economy is pointed in a positive direction and that will be bearish for gold until investors get used to the new norm for interest rates.

Gold

In this article:

Rising Treasury yields and a firm U.S. Dollar are weighing on gold prices on Friday, erasing all of this week’s gains. We may have identified the short-support area that investors consider value, but we’ve also learned the direction of the market is firmly being controlled by interest rates.

The main problem is gold investors don’t know where the rise in yields will stop and how much upside potential the U.S. Dollar has. Another problem gold investors have is the Fed is in “time out” until next week’s announcements on March 17. This means that there will be no one available to comment on a potential spike through 1.6%, and we could see the same turmoil in the bond market we saw a week ago.

At 14:00 GMT, April Gold is trading $1703.90, down $18.70 or -1.09%.

Fed Chair Jerome Powell has already stated his case for supporting rising rates. He said a week ago that he expects some inflationary pressures in the time ahead but they likely won’t be enough to spur the central bank to hike interest rates.

“We expect that as the economy reopens and hopefully picks up, we will see inflation move up through base efforts,” Powell said during a Wall Street Journal conference. “That could create some upward pressure on prices.”

Be careful what you wish for.

While Wednesday’s U.S. consumer inflation data came in mild, the data is stale. Additionally, it’s based on a 12-month average so the report still included the steep plunge in March 2020 when the pandemic hit. This means that when March drops off the average, the inflation report is likely to show a surge in inflation. The May CPI report will yield the real inflation data. Remember futures traders discount future events, hence the name. The move in yields suggests investors are already looking forward to the May inflation data.

Biden’s signing of the coronavirus relief package on Thursday is also a potentially bearish event for gold. The economy has been moving forward for months so this bailout package will only accelerate those gains. If the economy was hit with $1.9 trillion last year, we would’ve had a different reaction in the bond and gold markets.

This time the momentum is pointed in the other direction and that will be bearish for gold until investors get used to the new norm for interest rates.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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