Price of Gold Fundamental Daily Forecast – Underpinned by Lower Yields, Weak Stocks; Capped by Strong U.S. Dollar

Gold is likely to remain underpinned on Tuesday as long as Treasury yields remain under pressure and stocks weaken. However, gains are likely to remain limited by the stronger U.S. Dollar, which tends to reduce foreign demand for dollar-denominated gold.
James Hyerczyk
Comex Gold

Gold futures are trading higher on Tuesday after shrugging off a potential steep break based on Friday’s dismal performance. After last week’s technical reversal, the market was set up for a large decline, pressured by a combination of a stronger U.S. Dollar, firming Treasury yields and increasing demand for risky assets.

At 11:25 GMT, December Comex gold is trading $1539.60, up $10.20 or +0.67%.

Gold is being underpinned on Monday by a dip in Treasury yields and a soft stock market, however, gains are being capped by a rising U.S. Dollar.

Lower Yields, Stock Prices Supportive

Early Tuesday, the yield on the benchmark 10-year Treasury note was lower at around 1.4809%, while the yield on the 30-year Treasury bond was also lower at around 1.9506%.

Shortly before the cash market opening, U.S. stock index futures were sharply lower Tuesday after the world’s two largest economies began imposing new tariffs on one another’s goods.

The U.S. imposed 15% tariffs on a variety of Chinese goods on Sunday, while China imposed new charges on U.S. products from September 1. The moves marked an escalation in their long-running trade dispute.

U.S. Dollar Boosted by Weaker Euro, British Pound

Helping to offset the rally in gold is the stronger U.S. Dollar Index. The index rose in response to a weaker Euro, which touched a 28-month low against the dollar on Tuesday as investors priced in deeper negative interest rates for longer in the Euro Zone.

Traders are pricing in an 83% chance that the European Central Bank (ECB) will slash its benchmark rate by 20 basis points when it meets next week. It now stands at minus 0.40%. Additionally, the ECB is also expected to announce new monetary policy stimulus measures at its next meeting on September 12. These new measures include new quantitative easing.

The British Pound is also under pressure, lending some support to the U.S. Dollar. Traders have driven the Sterling to its lowest level since the financial crisis 10 years ago on Brexit uncertainty.

Daily Forecast

Gold is likely to remain underpinned on Tuesday as long as Treasury yields remain under pressure and stocks weaken. However, gains are likely to remain limited by the stronger U.S. Dollar, which tends to reduce foreign demand for dollar-denominated gold.

Buyers will have a hard time driving prices higher unless all three factors are pointing in the same direction.

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