Price of Gold Fundamental Daily Forecast – Weak Currencies Catalyst Behind Lower Gold Prices

Falling currency prices, rising Treasury yields and strong appetite for risk are likely to keep the downside pressure on gold prices. The weak outlook for the global economy is generating the pressure on the currencies, while optimism over the start of trade talks between the United States and China is helping to increase demand for higher-yielding assets.
James Hyerczyk
Gold Bars and Dollar

Gold is trading lower on Monday, pressured by a number of factors. The stronger U.S. Dollar is weighing the most on dollar-denominated gold because of reduced foreign demand. The dollar is being driven higher by rising U.S. Treasury yields that are making it a more attractive investment. Increased demand for higher risk assets is also pressuring investor demand for gold.

At 10:19 GMT, April Comex gold futures are trading $1310.30, down $8.30 or -0.63%.

The U.S. Dollar is up against most major currencies on Monday, hovering around a six-week high amid new worries about U.S.-China trade relations and global growth. Helping to boost the dollar are a weaker Euro, Australian Dollar and New Zealand Dollar.

The Euro has been weakening since last Monday after the European Commission lower its outlook for the Euro Zone economy. The Aussie has been under pressure since the Reserve Bank of Australian shifted monetary policy to neutral, suggesting to some that it was preparing for an interest rate cut later in the year. This week, the Reserve Bank of New Zealand is expected to leave its benchmark interest rate unchanged while issuing a dovish monetary policy statement that hints at a rate hike.

The strength in the U.S. Dollar is catching many gold traders by surprise because January ended with investors bullish gold and bearish the dollar due to the recent dovish tone by the U.S. Federal Reserve. At its end of its January policy meeting, the Federal Open Market Committee voted to leave its benchmark interest rate unchanged while saying it would be “patient” with in deciding future rate hikes. This caused investors to price in the possibility the central bank would take a pause in its rate hikes. This news also drove gold to a multi-month high.

Since February 1, gold has been pressured at times by rising Treasury, increased demand for risk and bearish currencies due to lowered economic expectations by the major central banks.

Daily Forecast

Falling currency prices, rising Treasury yields and strong appetite for risk are likely to keep the downside pressure on gold prices. The weak outlook for the global economy is generating the pressure on the currencies, while optimism over the start of trade talks between the United States and China is helping to increase demand for higher-yielding assets.

The return of China to the markets after the week-long Lunar New Year is also adding to the volatility in the gold market.

If the downside momentum continues then look for gold to test a key technical area at $1306.30 to $1300.40.

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