Price of Gold Fundamental Daily Forecast – Weaker Stocks Could Fuel Counter-Trend Rally

Gold futures are trading lower on Tuesday shortly before the regular session opening. However, we are seeing a rebound from its lowest level since August 13 as the market rapidly approaches a key retracement zone that could be attractive to value seekers. The selling is being driven by increased demand for risky assets and rising U.S. Treasury yields. A firmer U.S. Dollar is also weighing on demand for dollar-denominated gold.

At 10:54 GMT, December Comex gold futures are trading $1504.20, down $6.90 or -0.46%.

Weaker Stocks Could Be Supportive

Stocks are trading lower on Tuesday, as investors book profits following a nine session rally. Gold prices could get a boost today if the selling pressure continues.

But Rising Yields Could Limit Gains

Treasury yields are still a little firmer, which could help put a cap on any gains in the gold market. Yields are being supported by the hope that the latest round of trade talks between the United States and China, set to begin in early October, actually lay the groundwork for an eventual deal to end the trade war between the two economic powerhouses.

Easing Trade Tensions Catalyst Behind Recent Sell-off

The latest surge in Treasury yields is being fueled by a report from Politico on Friday. It reported that China made a peace proposal in a phone conversation with top trade officials last week to buy an unspecified quantity of U.S. agricultural goods.

The report, citing people familiar with the talk, said the offer could hinge on whether the U.S. eases export restrictions on Chinese telecom giant Huawei and postponing the October 1 round of tariffs.

U.S. Treasury Secretary Steven Mnuchin said Monday Washington and Beijing have a “conceptual” agreement on enforcement concerns. Trade negotiations between the economic powerhouses are expected to continue in early October.

Iris Pang, greater China economist at ING, said no “material progress” was expected in the upcoming trade talks. “Both sides seem to be standing firm, and are unlikely to give concessions anytime soon.”

Remember the U.S. Dollar

The Forex trade has been quiet this week as traders await the European Central Bank (ECB) interest rate and policy decisions on Thursday. If the ECB is dovish then the Euro could fall, sending the U.S. Dollar Index higher. This would put pressure on gold prices.

Traders still aren’t sure how to play the Euro ahead of Thursday’s ECB meeting so there hasn’t been much movement in the dollar this week. There is just too much to process at this time so traders are keeping their powder dry. Two weeks ago the market was pricing in an aggressive response from the central bank, causing the single currency to plunge and the U.S. Dollar Index to spike higher. Comments from future ECB President Christine Lagarde last week and a Reuters report earlier today have caused investors to revise down their expectations.