Gold Price Fundamental Daily Forecast – Bank of Canada Rate Decision, Treasury Yields Controlling Price Action

Gold futures are edging higher but in a tight trading range on Wednesday, underpinned by a weaker U.S. Dollar and dip in U.S. Treasury yields. The price action suggests traders are bracing for a number of major central bank decisions before making a commitment to either continue the downtrend or extend the counter-trend short-covering rally.

At 05:00 GMT, December Comex gold futures are trading $1659.80, up $1.80 or +0.11%. On Tuesday, the SPDR Gold Shares EFT (GLD) settled at $154.02, up $0.37 or +0.24%.

Traders have been particularly agitated this week by the volatility in U.S. Treasurys. On Tuesday, yields on the 10-year Treasury note fell, moving further away from a near 15-year high hit last week, as data signaled that the Fed’s aggressive tightening was cooling the economy.

Interest in the U.S. Dollar was dampened by Tuesday’s plunge in yields. This helped drive foreign demand for dollar-denominated bullion.

Gold Traders Paying Close Attention to Treasury Yields

Gold prices were supported on Tuesday as Treasury yields fell amid uncertainty over future Federal Reserve policy. The benchmark 10-year Treasury yield was about 4.067%. The 2-year Treasury yield was about 4.46%.

Most gold traders are eyeing the 10-year’s psychological 4.00% level for direction. Currently, with the yield above this level, gold prices are being capped. However, a sustained move under this level could spike gold prices higher.

Global Events, Weaker Yields Pressuring US Dollar

A weaker U.S. Dollar is also helping to underpin gold prices early Wednesday. The dollar was not only pressured by the drop in yields, but also by international events.

The dollar fell against a basket of major currencies on Tuesday, led by a recovery in the British Pound. Sterling is trading near the six-week high it hit on Tuesday after new British Prime Minister Rishi Sunak pledged to lead the country out of an economic crisis.

Later this week, gold traders will also get the opportunity to react to central bank interest rate decisions from the Bank of Canada (BOC), the European Central Bank (ECB) and the Bank of Japan (BOJ). The BOC and ECB are both expected to raise interest rates, while the BOJ is expected to hold its ultra-dovish policy steady. Remember that higher rates tend to dim bullion’s appeal, as they increase the opportunity cost of holding the non-yielding asset.

Short-Term Outlook

Ahead of next week’s Federal Reserve interest rate decision, gold prices are likely to remain data dependent and sensitive to the movement in Treasury yields. Both factors came into play on Tuesday, raising questions about how long the Federal Reserve will continue hiking interest rates and by how much they will be increased.

Today’s U.S. reports include the Goods Trade Balance and Preliminary Wholesale Inventories, due to be released at 12:30 GMT. Gold prices could also be influenced by the Bank of Canada interest rate decision at 14:00 GMT. BOC policymakers are expected to rise their overnight rate by 75 basis points.