Price of Gold Fundamental Daily Forecast – Higher Yields, Demand for Risky Assets Outweigh Stimulus Impact

Gold futures are trading marginally higher on Thursday, hitting its highest level in nearly two weeks. The headlines are saying a lower U.S. Dollar is providing support, but they fail to mention that strong demand for risky assets is helping to cap gains as well as slightly higher Treasury yields.

At 12:51 GMT, April Comex gold is trading $1873.80, up $3.60 or +0.19%.

Dollar Weakens on Hopes of Further Stimulus

The U.S. Dollar is easing against a basic of major currencies on hopes of further stimulus under President Joe Biden’s administration. The focus for bullish traders is on Biden’s $1.9 trillion stimulus plan as he gears up to jump-start his response to the COVID-19 pandemic, which has claimed more than 400,000 lives and upended the world’s largest economy.

Although Biden’s top priority is getting his stimulus plan through Congress quickly, he could face headwinds because of the divided Congress, where Democrats hold slim advantages in both the House and the Senate.

It remains to be seen whether the stimulus would go through both houses of Congress as quickly as Biden’s expectations and that probably the number one reason why gold hasn’t taken off to the upside since the announcement of his stimulus package and Treasury Secretary nominee Janet Yellen’s call for the government to “go big” in its coronavirus relief efforts.

US Treasury Yields Inch Higher

Higher Treasury yields have challenged gold’s role as a hedge against inflation recently as they increase the opportunity cost of holding non-yielding bullion.

Biden’s massive stimulus talk is likely to push inflation higher down the road and if that happens, the Federal Reserve will look to hold back on policy support and probably start seriously considering unwinding current policy measures. That would push up interest rates, while increasing the U.S. Dollar’s appeal as a safe haven asset. Demand for dollar-denominated gold would weaken because of a stronger U.S. Dollar.

Daily Forecast

Trading gold at this time is not as simple as the headline writers try to make it. A weaker dollar doesn’t automatically send gold prices flying higher especially when rising yields are making Treasurys an attractive alternative to the precious metal that doesn’t pay you anything to hold it.

Additionally, new stimulus will be good for the stock market, another competing asset with gold.

So we could see a little support for gold over the near-term, but there is nothing in the cards at the moment to suggest a major breakout to the upside is just around the corner.

For a look at all of today’s economic events, check out our economic calendar.