Gold Price Fundamental Daily Forecast – Rapid Rate Hikes to Dampen Demand

Gold futures are trading flat on Thursday, hovering just above an 18-month low at $1618.00. The catalysts behind the weakness are rising global bond yields and a stronger U.S. Dollar. It’s not just soaring Treasury yields exerting the pressure at this time, yields are rising all over the world.

After consolidating for a few sessions, gold prices plunged on Tuesday after 10-year U.S. Treasury yields moved above the elusive 4 percent level.

But prices were hit particularly hard on Wednesday after a report showed inflation in the UK in September increased to 10.1 percent, from 9.9 percent in August.

Furthermore, core inflation excluding the more volatile food and energy prices increased to 6.5 percent, from 6.3 percent in August. Additionally, the final reading of inflation in the Euro Zone in September stood at 9.9 percent, versus 9.1 percent in August.

At 07:21 GMT, December Comex gold futures are trading $1634.70, up $0.50 or 0.03%. On Wednesday, the SPDR Gold Shares ETF (GLD) settled at $151.72, down $2.03 or -1.32%.

Soaring 10-year rates are increasing the opportunity cost of holding non-yielding bullion, weighing on gold. Government bond yields are hardening across countries, regions and areas, pricing in the likely increase in interest rates that would be required to combat inflation.

Key Event: Soaring Food Prices Push UK Inflation Back to 40-Year High

The biggest jump in food prices since 1980 pushed British inflation back into double-digits last month, matching a 40-year high hit in July in a new blow for households grappling with a cost-of-living crisis.

The British Pound fell on the news, boosting the U.S. Dollar. Additionally, short-dated British government bond yields, which are sensitive to changes in interest rate expectations, rose strongly in early trading. Higher yields are frowned upon by gold traders.

The news may have also put pressure on the Bank of England to step up its interest rate hiking campaign next month in light of Wednesday’s data, another negative for gold prices.

Key Event 2:  Rising Euro Zone Inflation Puts Pressure on ECB to Act Aggressively

The European Central Bank (ECB) will go for another jumbo 75 basis point increase to its deposit and refinancing rates when it meets on October 27 as it tries to contain running at five times its target, a Reuters poll found.

As in much of the world, Euro Zone inflation has soared on skyrocketing energy prices and supply chains still healing from the coronavirus pandemic have taken a further hit from Russia’s invasion of Ukraine.

Short-Term Outlook

Inflation is far too high in the United States, United Kingdom and Europe so rapid rises are needed. Economic conditions could deteriorate fast if inflation continues to rise so the major central banks have to act fast. This should keep the pressure on gold prices.

Gold is likely to keep drifting lower as long as Treasury yields remain above 4.0%. A move below this level could trigger a short-covering rally.