Price of Gold Fundamental Daily Forecast – Underpinned by Political Uncertainty, Capped by Rising Yields

Gold futures rose on Tuesday as investors reacted to a steep plunge in the U.S. Dollar. Since gold is dollar-denominated, it tends to firm when the Greenback weakens due to expectations of increased foreign demand. In this case, however, we may have seen some buying related to political events in Washington, fueling a so-called “safe-haven buying rally”.

August Comex gold futures settled at $1214.70, up $1.50 or 0.12%. The one-day rally may not have been much, but the market is up over $10.00 from Monday’s low.

Gold struggled most of the session because of concerns over rising Treasury yields and ahead of Fed Chair Janet Yellen’s two-day testimony before Congress on Wednesday.

The market began to pick up strength after President Donald Trump’s eldest son released an email chain suggesting he welcomed Russia’s help in last year’s election campaign. This revelation sent investors into the safe-haven gold market.

The emails released by Donald Trump, Jr., raised many questions about the President’s knowledge of Russia’s attempts to influence the election. Whether Trump knew of the meeting or not is not the issue at this time. Traders reacted the way they did because it looks as if the Trump administration will continue to be plagued by this issue, putting a damper on its ability to fulfill its economic agenda.

Forecast

August Comex gold is going to continue to be most sensitive to the direction of U.S. Treasury yields, therefore, the main focus will be on Yellen today, however, traders will also be keeping an eye on the events in Washington especially since it looks as if Trump, Jr. may continue to bury himself in the controversy that could eventually get his father ousted from office.

Yellen’s testimony is not expected to reveal any surprises. Based on past performance, she is widely expected to reiterate the Fed’s key themes as highlighted in its monetary policy statement and minutes.

This means she is likely to acknowledge the economy is growing slowing, the labor market is strong and the muted inflation is temporary. She is also likely to day the central bank is prepared to raise rates at least once more in 2017 and perhaps as many as three times in 2018. Furthermore, Yellen may reveal a few more details about the central bank’s plan to trim its balance sheet, probably saying the process will be gradual as to not disrupt the economy or financial markets.

Gold prices could weaken if Yellen comes across as more-hawkish than-expected. Prices could firm if Yellen sounds dovish, or if there are further develops in Washington.