Price of Gold Fundamental Daily Forecast – Light Buying Supported by Drop in Yields, Weaker Dollar

Gold futures are edging higher on light volume shortly before the New York opening on Monday. The market is actually recovering from early weakness following last week’s steep drop in prices.

The catalyst behind today’s rebound is lower Treasury yields and a softer U.S. Dollar. Volatility is also low as many of the major players have taken to the sidelines ahead of the release of U.S. Federal Reserve minutes on Wednesday.

At 10:15 GMT, December Comex gold is trading $1962.50, up $12.70 or +0.65%.

Gold fell 4.5% last week in its biggest decline since March as investors reassessed positions following a rally into an all-time high on August 7. The selling was driven by a rise in U.S. Treasury yields to their highest levels since mid-July and a stalemate in Congress over the next round of fiscal stimulus from the government.

Despite the short-term setback, gold remains fully supported over the long-run since the Fed and other major central banks are not likely to raise rates or start pulling in their monetary stimulus for at least a couple of years.

Last week, the Reserve Bank of New Zealand (RBNZ) held its official cash rate at 0.25% in a widely expected decision and expanded its large scale asset purchase (LSAP) program to as much as NZ$100 billion ($65.39 billion).

The decision making committee said a package of additional monetary instruments must remain in active preparation, which includes negative interest rates, while purchases of foreign assets also remain an option.

This week, traders will focus on the Fed minutes which could offer hints of a possible change to its guidance at its next review in September. The minutes might suggest the Fed is not feeling any pressure to expand its monetary support at this time, however, this may hinge upon whether the Democrats and Republicans can iron out their differences and agree on a new stimulus package.

In Australia late last week, Reserve Bank (RBA) Governor Philip Lowe said policymakers have done enough while calling on all levels of government to “put all shoulders to the wheel” to fund the spending desperately needed to generate jobs and drag the economy out of its deepest recession in about a century.

Daily Forecast

Gold has risen 28.4% so far this year as unprecedented global stimulus to ease the economic blow from the COVID-19 pandemic pushed investors to bullion as a hedge against inflation and currency debasement.

However, buyers may have over done it and the market had to retreat to relieve some of the upside pressure. With the Fed not likely to “sweeten the pot” with more stimulus over the short-run, investors are now left waiting for the next bullish catalyst, which may not show up until sometime after Labor Day (September 7), in the form of the U.S. Presidential elections.

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