Price of Gold Fundamental Daily Forecast – Waiting for Freefall to Begin as Yields Hit Three-Month Highs
Rising U.S. Treasury yields are driving gold futures lower on Tuesday with the market testing its lowest level since August 11. Sellers took out last week’s low at $1737.50 earlier in the session, signaling a continuation of the current weakness that began at $1836.90 on September 3.
Additionally, the daily chart pattern suggests support is scarce under $1738.60 with $1716.00 the next likely target. This is also the trigger point for an acceleration to the downside with the August 9 bottom at $1677.90 the near-term target.
At 07:38 GMT, December Comex gold futures are trading $1741.60, down $10.40 or -0.59%.
Reuters is saying “gold prices are holding steady as concerns over a potential fallout of Chinese property developer Evergrande’s unsolved debt crisis is providing respite to the safe-haven metal against a firmer dollar and elevated U.S. Treasury yields,” but they don’t say why they believe that. In my opinion, it’s just another news writer trying to build a case for the so-called “safe-haven” element of the gold market.
I don’t see it that way. There may be lingering concerns over Evergrande, but if there were real worries, global investors would be buying bonds and yields would be falling. Additionally, the dollar would be soaring. Both factors would dampen gold’s appeal as a safe-haven, whatever that is.
Treasury Yields Rise to Start the Week, 10-year Yield Tops 1.5%.
U.S. Treasury yields are edging higher early Tuesday after bouncing higher the previous session. Yields have been driven upward since last week when the Federal Reserve announced it was moving closer to easing off its pandemic-era policies. This move is making the U.S. Dollar a more attractive asset, while capping gains in gold.
At 08:03 GMT, the yield on the benchmark 10-year Treasury note is at 1.539% and the yield on the 30-year Treasury bond is at 2.057%. These are their highest levels since June 28.
Gold Sellers Still Responding to Hawkish Fed
Gains in the gold market have been capped since last week after the Fed hinted that it may soon taper its asset purchasing program. Additionally, a rising number of Fed officials now see a rate hike in 2022, according to projections released by the central bank last week.
NY Fed’s Williams Thinks It’s Time to Remove Some of the Economy’s Support
New York Fed President John Williams told the New York Economic Club on Monday that the U.S. economy is close to the point where the Fed will begin to remove some of its market support.
“I think it’s clear that we have made substantial further progress on achieving our inflation goal. There has also been very good progress toward maximum employment. Assuming the economy continues to improve as I anticipate, a moderation in the pace of asset purchases may soon be warranted,” Williams said.
Gold traders should continue to monitor Treasury yields for direction. We expect to see yields touch a minimum of 1.57% before the rate of the rise begins to slow. However, our main objective is 1.69%.
A rise in yields to either one of these levels should put tremendous pressure on gold prices with $1677.90 the minimum target over the near-term. If yields reach the main objective of 1.69% then gold could trade down to at least $1600.00.
Later today at 14:00 GMT, investors will be eyeing Congressional testimony from U.S. Federal Reserve Chair Jerome Powell. We don’t expect Powell to waver from the hawkish comments he made shortly after the release of Federal Reserve’s monetary policy statement last Wednesday. In his press conference, Powell said the central bank would move against unchecked inflation if needed. This is a hawkish remark.
Last week, Fed policymakers also tied reduction in Federal Reserve monthly bond purchases to continued job growth, with a September employment report (due October 8) now a potential trigger for the central bank’s bond “taper.”