Price of Gold Fundamental Weekly Forecast – Fed’s Influence on Treasury Yields Will Set the Tone

Gold futures posted a potentially bearish closing price reversal top last week, ending a two-week winning streak. The market ran into long-term 50% resistance at $1788.50, but more importantly for fundamental traders, confusing signals from the U.S. Dollar and U.S. Treasury yields. Position-squaring ahead of this week’s two-day Federal Reserve meeting may have also weighed on demand for the precious metal.

Last week, June Comex gold futures settled at $1777.80, down $2.40 or -0.13%.

The more than one-year range for the June Comex futures contract is $1464.20 to $2112.70. The market is currently trading near the upper level of its 50% to 61.8% retracement zone at $1788.50 to $1711.90. This zone is controlling the near-term direction of the market.

The U.S. Dollar settled lower against a basket of major currencies last week despite robust U.S. economic news. The dollar’s weakness was primary driven by a stronger Euro.

If the dollar had weakened because of disappointing U.S. economic data then gold would have probably risen. Instead it was surprisingly strong Euro Zone economic data that drove the Euro higher. This isn’t necessarily bullish for gold.

Finally, U.S. Treasury yields posted only a marginal drop last week after plunging the last two weeks. This helped put a cap on gold prices.

This week gold traders will be focusing on the U.S. Federal Reserve monetary policy decisions. The direction of the gold market will primarily be driven by the direction of U.S. Treasury yields.

What to Expect from the Fed

The U.S. Federal Reserve, which meets on Tuesday and Wednesday, is expected to defend its policy of letting inflation run hot, while assuring markets it sees the pick-up in prices as only temporary. Chairman Jerome Powell will host a press conference Wednesday afternoon to discuss the Federal Open Market Committee’s decision.

Powell is likely to face questions over whether an improving labor market and rising coronavirus vaccinations warrant a withdrawal of monetary easing, but most analysts expect him to say such talk is premature, which would put downward pressure on Treasury yields and the dollar.

Over the weekend, Reuters reported that there is fresh speculation that Powell will shun talk of tapering bond purchases. This topic had been brought up by traders late last week.

Weekly Forecast

There are some that are expecting the Fed meeting to be a non-event. The direction of Treasury yields will dictate the direction of gold prices. The direction of the U.S. Dollar may have little influence on gold prices.

The Fed is largely expected to maintain its usual dovish position while the U.S. 10-year yield continues its descent since April, showing little reaction to a recent series of robust economic data over the past few weeks. If yields continue to drop then look for gold to rally. If yields start to rise again then look for gold to weaken.