Price of Gold Fundamental Weekly Forecast – Rising Yields Could Pressure Gold, but Falling Stocks Could Limit Losses

Sharply higher U.S. 10-year Treasury Note and 30-year Treasury Bond yields, helped by a somewhat hawkish Fed monetary policy statement and strong U.S. economic data helped drive gold prices lower last week. Losses may have been limited, however, by a steep drop in U.S. equity indexes which may have driven investors into the safe haven market.

April Comex Gold futures settled the week at $1337.30, down $19.90 or -1.47%.

The 10-year U.S. Treasury yield jumped to a four-year high last week as investors bet on accelerating inflation from this growing economy. The 10-year note was up roughly 4 basis points at 2.837 percent, while the yield on the 30-year Treasury bonds was up roughly 5 basis points at 3.08 percent.

U.S. Federal Reserve News

The U.S. Federal Reserve ended its two-day meeting on Wednesday by announcing it would not raise its benchmark interest rate. However, it indicated that it expects inflation pressures to heat up as the year moves on.

The decision by the Federal Open Market Committee to leave interest rates at 1.25 to 1.50 percent was widely expected. Additionally, according to projections released in December, FOMC officials expect three rate hikes this year so long as there is no significant disruption to market conditions. Recent price action in the Treasury markets, however, suggests that investors believe the Fed is considering a fourth rate hike.

U.S. Non-Farm Payrolls Report

The U.S. Labor Department reported Friday that the U.S. economy added 200,000 jobs in January, beating economist expectations of 180,000 jobs added. The unemployment rate came in as expected at 4.1%, unchanged from the previous month.

In addition to the robust headline news, yields were driven higher by strong evidence of rising wages. Average hourly earnings posted a 0.3 percent gain for the month and an annualized gain of 2.9 percent, the best gain since the early days of the recovery in 2009.

Forecast

The direction of the April Comex Gold market this week will be determined by trader reaction to U.S. Treasury yields. Look for gold prices to weaken if Treasury yields continue to rise since this could increase demand for the U.S. Dollar while leading to lower demand for dollar-denominated gold.

Gains could be limited if there is a steep sell-off in the equity indexes because here may be a certain point where investors move money into safe haven assets like gold and the Japanese Yen.

In the U.S., the major report is Monday’s ISM Non-Manufacturing PMI. It is expected to come in at 56.5, up from 55.9.

Fed speakers could cause volatile reactions in the market if they give their assessment on the strength of the economy, the direction of inflation and the likelihood of further rate hikes. The key Fed speakers this week will be FOMC Member William Dudley on Wednesday at 1330 GMT and FOMC Member John Williams at 2220 GMT.