Gold Price Fundamental Daily Forecast – Jump in Treasury Yields Has Gold Traders Bracing for Big Fed Rate Hike

Gold futures are inching lower on Tuesday in a lackluster trade as traders brace for tomorrow’s U.S. Federal Reserve interest rate decision that could set the tone in the market for months. Although the U.S. Dollar is trading nearly flat, U.S. Treasury yields continue to rise, weighing on demand for non-yielding bullion.

At 12:00 GMT, December Comex gold is trading $1676.70, down $1.50 or -0.09%. On Monday, the SPDR Gold Shares ETF settled at $155.97, up $0.13 or +0.08%.

Ahead of the start of the Fed’s two-day meeting later today, traders are pricing in a 75 basis point rate hike by the central bank. However, some are saying there is an outside chance that we could see a full-percentage point hike, which could trigger a $70 to $100 near-term break in gold.

Bearish Factors Continue to Weigh on Gold Demand

Gold is expected to remain under pressure over the near-term when you consider the number of central banks lining up for interest rate hikes.

Earlier today, the Swiss National Bank (SNB) surprisingly raised its benchmark interest rate more than expected. The Fed is expected to hike its benchmark on Wednesday, followed by another rate hike by the Bank of England (BoE). The Bank of Japan is also scheduled to meet, but it is expected to maintain its ultra-dovish interest rate policy.

The dollar holding close to a two-decade high is also pressuring demand for gold along with a surge in U.S. Treasury yields into levels not seen since 2007.

Even with global inflation near decades old highs, demand for gold has been scarce, despite the metal’s reputation as a hedge against inflation. The reason for this is non-yielding gold’s inability to compete with rising government debt yields.

Another sign of weakness is the poor performance in the SPDR Gold Trust ETF (GLD). Investors have been liquidating this ETF en masse, driving its price into its lowest levels since March 2020.

2-Year Treasury Yields Reach Fresh 15-Year High

The biggest bearish influence on gold prices is being generated this week by a surge in U.S. Treasury Yields

Treasury yields rose on Tuesday as traders await the Federal Reserve’s decision on interest rate hikes, which is expected to be announced on Wednesday.

The policy-sensitive 2-year Treasury yield gained about 3 basis points, reaching 3.977% – a level it had not hit since late 2007. The yield on the 10-year Treasury was up 5 basis points to 3.539%, trading near levels not seen since 2011.

Yields could spike higher and gold prices could plunge $70 to $100 on Wednesday if the Fed moves its target range for its benchmark interest rate to 4.0 – 4.25%.