Price of Gold Fundamental Weekly Forecast – Focus Should Be on Yields, Not the US Dollar

This week’s price action is likely to be driven once again by the direction of U.S. Treasury yields and there are a lot of events that could move yields and consequently gold prices. Essentially, higher yields and increased demand for risk will likely put a lid on gold prices, and lower yields will likely continue to underpin gold prices. Traders will also react to events in Europe if they continue to drive yields lower.
James Hyerczyk
Gold Bars and Dollar

Gold futures posted a dramatic technical reversal last week after getting help from a decline in U.S. Treasury yields. While most investors were focusing on gold’s relationship to the U.S. Dollar and appetite for risk, professionals were buying gold on weakness because of the steep decline in global yields. This theme is likely to continue this week with traders focused on several economic reports and the U.S. Federal Reserve’s next directive.

Last week, June Comex gold settled at $1288.80, up $12.80 or +1.00%.

Keep in mind that gold rallied during a week when the U.S. Dollar rose to a two-year high against a basket of currencies and the S&P 500 and NASDAQ Composite posted record high closes. This price action indicates to me that gold investors are focusing on another catalyst, and that catalyst in global bond yields.

U.S. Treasury Yields Fall

U.S. government debt yields followed European rates lower on Wednesday after new data suggested a gloomier outlook amid German business leaders. Bond yields around the world dipped after the Ifo Institute reported that confidence in German c-suites unexpectedly fell in April. The Munich-based researcher’s business climate indicator fell for a seventh month in the last eight and contradicted upbeat forecasts with a 99.2 print. April’s print was the indicator’s lowest reading since 2016.

Yields continued to tumble on Friday even though the U.S. government said economic activity rose more than expected during the first few months of 2019. The Bureau of Economic Analysis said Friday that first-quarter GDP expanded by 3.2%, the best start to a year since 2015 and well ahead of economist expectations for 2.5% growth.

Weekly Forecast

This week’s price action is likely to be driven once again by the direction of U.S. Treasury yields and there are a lot of events that could move yields and consequently gold prices.

Volatility this week could be fueled by the U.S. Federal Reserve’s interest rate and monetary policy decisions on Wednesday. Traders are looking for the Federal Open Market Committee to continue holding borrowing costs steady for the third time this year. Over the past few weeks, policymakers in their speeches have all basically said that interest rates were currently in the right place.

Traders should also look for the possibility of downgraded views of inflation from the Fed. Additionally, some are expecting the Fed to more clearly define their patient stance.

Traders will also get the opportunity to react to U.S. Consumer Confidence, ISM Manufacturing PMI and the U.S. Non-Farm Payrolls report.

Essentially, higher yields and increased demand for risk will likely put a lid on gold prices, and lower yields will likely continue to underpin gold prices.

Traders will also react to events in Europe if they continue to drive yields lower.

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