Gold Price Fundamental Daily Forecast – Rising Yields, Firm Dollar Chasing Weak Longs Out

Gold futures are edging lower on Wednesday, pressured by the usual suspects – rising Treasury yields and a firming U.S. Dollar. Hawkish comments from a key Federal Reserve official yesterday also kept a lid on prices.

The short-term price action has been choppy since last week’s release of the red-hot U.S. consumer inflation report. Although some of the weaker shorts may have covered on the news, the bigger players remain committed to the short side because of the U.S. Federal Reserve’s vow to continue tightening monetary policy.

At 10:10 GMT, December Comex gold futures are trading $1645.40, down $10.40 or -0.63%. On Tuesday, the SPDR Gold Shares ETF (GLD) settled at $153.76, up $0.34 or +0.22%.

What we’ve been seeing in the gold market for several months has been textbook. Rising Treasury yields have been dampening gold’s investment appeal because it is a zero-yield asset. And the soaring greenback is driving down foreign demand for the dollar-denominated investment.

Translation:  Foreign investors don’t want it because it’s too expensive and doesn’t pay anything to hold it.

US Dollar Supported as Inflation Data Weighs on Sterling, Euro

The U.S. Dollar is up against a basket of major currencies amid rising Treasury yields, and pullbacks in both the British Pound and Euro.

The British Pound retreated after data showing Britain’s annual consumer price inflation inched up to 10.1% in September, rising more than expected and returning to a 40-year high hit in July.

Investors expect the Sterling to remain under pressure amid the outlook for rising inflation and a recession in Britain which could lead the BoE to hike by 75 basis points rather than 100 bps at its November meeting.

The Euro retreated after annual Final consumer inflation came in slightly lower than expected at 9.9%. Traders were looking for a reading of 10.0%. Final Core CPI remained unchanged at 4.8%.

Despite the dip in Euro Zone inflation, economists polled by Reuters still expect another 75-basis-point rate hike from the European Central Bank on Thursday of next week.

Treasury Yields Climb as Recession Fears Spread

Putting additional pressure on gold prices is a rise in government debt yields. Treasury yields rose across the board on Wednesday as concerns over a recession spread among investors, and markets looked ahead to the release of housing market data.

Concerns about a recession have been growing louder among investors as the Federal Reserve continues to follow a hawkish path lined with interest rate hikes.

Speaking at an event on Tuesday, Minneapolis Fed President Neel Kashkari said he saw no reason not to push the central bank’s benchmark funds rate above 4.75% in order to tackle inflation.

Short-Term Outlook

I stand by my comment from yesterday that gold is going to have a very hard time posting a sustainable rally as long as Treasury yields remain above 4.0%. Look for more downside pressure today if yields continue to rise.

Also today, gold traders will be looking for further insights into the state of the U.S. economy and the impact economic developments are having on consumers.

Today’s Fed speakers and housing starts and building permits data could give them the insight they are seeking.