Price of Gold Fundamental Daily Forecast – Yields Surge Could Spike Gold Prices Sharply Lower

Gold lost a little of its luster on Monday after a decent performance last week. Gains were capped and speculators encouraged to book profits after a Federal Reserve official supported the notion of further interest rate hikes later this year.

June Comex Gold futures settled at $1320.70, up $6.00 or +0.46%.

There were no major U.S. economic reports, but early Monday, gold traders did get the opportunity to react to hawkish comments from FOMC Member Loretta J. Mester.

Speaking in France, Cleveland Fed President Mester said the Federal Reserve should continue its gradual approach to raising interest rates given that inflation has not yet reached the U.S. central bank’s 2 percent goal in a sustained way.

“In my view, the medium-run outlook supports the continued gradual removal of policy accommodation; it seems the best strategy for balancing the risks to both of our policy goals and avoiding a build-up of financial stability risks,” Mester said in prepared remarks for a speech in Paris.

Mester also said she does not expect inflation to pick up sharply, adding that while it is close to the Fed’s symmetric 2 percent target, it will only reach that level on a sustainable basis over the next one to two years.

“We want to give inflation time to move back to goal…this argues against a steep path,” she said.

St. Louis Federal Reserve President James Bullard said on Monday the U.S. yield curve could invert later this year or early 2019. This is a market move in which short-term U.S. interest rates rise above longer-term bond yields, a scenario which has preceded recent U.S. recessions.

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Forecast

Gold continues to weaken early Tuesday as investors react to rising U.S. Treasury yields and the strengthening U.S. Dollar.

At 0842 GMT, June Comex Gold futures are trading $1309.40, down $8.70 or -0.66%.

U.S. government debt yields are rising and gold investors don’t like it. The yield on the two-year Treasury note hit 2.547 percent, its highest level since August 12, 2008, when the two-year yielded as high as 2.549 percent. The yield on the benchmark 10-year Treasury note, meanwhile, was higher at 3.002 percent, while the yield on the 30-year Treasury bond was also higher at 3.131 percent.

On Tuesday, investors will likely react to the U.S. Retail Sales report. Core Retail Sales are expected to come in at 0.5% and Retail Sales at 0.4%. Strong numbers will indicate economic growth.

Minor reports include the Empire State Manufacturing Index, Business Inventories, NAHB Housing Market Index and TIC Long-Term Purchases. FOMC Member Williams is also scheduled to speak.

Gold is now challenging its major support zone at $1311.40 to $1296.20. Trader reaction to this zone will determine the longer-term direction of the market. Keep an eye on the reports and Fed speakers this week because it looks like investors are no longer reacting to last week’s softer-than-expected U.S. consumer inflation data and this could mean yields are getting ready to surge to the upside.

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