Price of Gold Fundamental Daily Forecast – Underpinned by Lower Yields, Capped by Stronger US Dollar

Gold futures are trading slightly lower after the mid-session on Tuesday after giving up earlier gains. The price action is mirroring the movement in 10-year Treasury notes, which rallied earlier in the session as yields fell. The U.S. Dollar is up sharply, which may be capping gains in gold, but I don’t see a particularly bearish response to the move.

Essentially, investors are buying the U.S. Dollar for protection against outside factors such as the turmoil in Afghanistan and the new lockdowns from the surge in coronavirus. The drop in Treasury yields is being fueled by a weaker outlook for the economy. However, today’s economic data was mixed.

At 18:35 GMT, December Comex gold futures are trading $1785.40, down $4.40 or -0.25%. This is well off the high of the session at $1797.60.

Bearish Factors

The stronger U.S. Dollar is weighing on dollar-denominated gold on Tuesday. The move by the greenback is helping to reduce foreign demand for gold.

The dollar gained for a second straight session on Tuesday, bolstered by safe-demand as investors fretted about Afghanistan, China’s plans to regulate the internet sector, and the Delta variant COVID-19 spread which forced some lockdowns.

The U.S. Dollar was also supported by a report showing U.S. manufacturing production accelerated on autos in July.

Production at U.S. factories surged in July, boosted by an acceleration in motor vehicle output as auto makers either pared or canceled annual retooling shutdowns to work around a global semiconductor shortage.

Manufacturing output jumped 1.4% last month after falling 0.3% in June, the Federal Reserve said on Tuesday. Economists polled by Reuters had forecast manufacturing production rising 0.6%.

Bullish Factors

A slight dip in Treasury yields early Tuesday helped spike gold prices higher after July’s retail sales data came in worse than expected. However, yields stabilized and gold prices retreated after the U.S. manufacturing data was released.

The Census Bureau said Tuesday that retail sales fell 1.1% in June, driven largely by a drop in car sales. Economists expected retail sales to fall by 0.3% in July, compared to a revised 0.7% gain in June, according to Dow Jones consensus forecast. Excluding autos, sales were down 0.4% compared to estimates of a 0.2% slowdown.

Short-Term Outlook

We’re going to continue to call for a choppy, two-sided trade over the near-term until the economic data clearly indicates the Fed will announce its plans to begin tapering its economic stimulus. The key factors remain the labor market and inflation.

Although central bank policymakers have said labor market growth is the most important factor in determining when the Fed will raise rates, we saw last week that consumer inflation numbers and consumer confidence data are still being watched by investors.

We have also seen that gold has shown a tendency to react the most to comments from Federal Reserve Chairman Jerome Powell, Federal Reserve Vice-Chairman Richard Clarida and Federal Reserve Bank of New York CEO John Williams.

Comments from these players will be market moving events.