Gold Price Fundamental Daily Forecast – Coordinated Intervention Would Weaken Dollar, Support Bullion

Gold futures are trading flat but consolidating for a second session as traders react to a weakening U.S. Dollar and a dip in U.S. Treasury yields. The stable price action suggests the market may be getting ready for a major move to the upside. If one takes place then it will likely be tied to a possible intervention against the greenback.

At 05:03 GMT, December Comex gold futures are trading $1664.80, up $0.80 or +0.05%. On Monday, the SPDR Gold Shares ETF (GLD) settled at $153.45, up $0.47 or +0.31%.

2-Year Treasury Yields Decline as Investors Assess Inflation, Earnings

U.S. Treasury yields are edging lower early Tuesday after falling the previous session. The weakness is being attributed to the start of earnings season when investors get the opportunity to look at results to assess the impact of persistent inflation. Investors are also being influenced by improving financial conditions in the U.K. that had been weighing on global bond markets.

Lower yields tend to be supportive for gold prices. In this case, it could fuel the start of a short-term counter-trend rally, but longer-term the market is likely to trend lower because of widely expected aggressive rate hikes by the Federal Reserve.

Intervention Fears, Improving Risk Sentiment Weighing on US Dollar

Gold prices are also being underpinned by a weaker U.S. Dollar. The greenback is being pressured by a number of factors including the fear of an intervention by Japanese authorities, or even worse by a concerted intervention by a number of major central banks. A shift in risk sentiment is also encouraging investors, who bought the dollar for safe-haven protection, to liquidate those long positions.

A weaker dollar will also be good news for gold prices because it tends to drive up demand from holders of foreign currencies.

Short-Term Outlook

Gold prices could continue to edge higher over the short-run as long as the U.S. Dollar remains soft and Treasury yields stop moving higher. Longer-term, however, the outlook will be bearish due to looming aggressive interest rate hikes by the Federal Reserve.

One event that could produce a huge short-covering rally in gold will be an aggressive intervention by a number of central banks. Currently, traders are bracing for an intervention from Japan, but other central banks whose currencies have been damaged by the strong dollar, could join them.

Japanese Finance Minister Shunichi Suzuki admitted following the recent Group of Seven gathering that “there wasn’t any discussion on what coordinated steps could be taken” about currency volatility. But this doesn’t mean it has been completely taken off the table.

US Doesn’t Want Coordinated Intervention

The U.S. has made it clear that it won’t approve of a coordinated intervention. U.S. Treasury Secretary Janet Yellen has said several times that Washington had no appetite for concerted action.

This is the very reason gold traders should be on their toes. The element of surprise puts downside risk in the hands of long U.S. Dollar investors and upside potential in the hands of speculative gold buyers.

We haven’t see any signs of an intervention yet, other than a tentative trade in the Japanese Yen. But we do know gold prices haven’t fallen below the low hit on September 28, a few days after Japan intervened the first time. Furthermore, the low at $1622.20 remained untouched last week after the U.S. red-hot inflation report and after the odds of a 75-basis point rate hike by the Fed jumped to nearly 100%.