Price of Gold Fundamental Daily Forecast – Pressured by Strong Dollar, Stabilizing Yields, Demand for Risk

Gold futures are edging lower on Wednesday, pressured by a firmer U.S. Dollar ahead of the European Central Bank (ECB) announcements on Thursday, another rise in U.S. Treasury yields and increasing demand for riskier assets with U.S. equity markets hovering slightly below record highs. Despite having its gains capped, the market appears to be underpinned by some inflows into the safe-haven metal due to concerns over a surge in COVID-19 cases.

At 10:38, December Comex gold futures are trading $1808.10, down $7.10 or -0.39%.

COVID-19 Fears, Weak Euro Push US Dollar Higher

Currency markets still showed signs of risk aversion on Wednesday after global markets were spooked earlier in the week by surging COVID-19 infections, with the safe-haven dollar rising to its highest since early April. A strong U.S. Dollar tends to reduce foreign demand for dollar-denominated demand gold.

The Delta variant of coronavirus has replace inflation as investors’ primary source of concern this week, prompting global stocks to drop sharply on Monday, Reuters wrote.

In a quiet day for economic data, currency markets are looking ahead to the European Central Bank (ECB) meeting on Thursday. A dovish tone is expected after ECB President Christine Lagarde foreshadowed a guidance tweak during an interview last week. A weaker Euro tends to weigh on gold prices because it drives the U.S. Dollar higher.

The ECB announced a new strategy which allows the bank to tolerate inflation above its 2% target, and Lagarde said policy guidance would be revisited to demonstrate the bank’s commitment to the new goal.

Treasury Yields Rise, 10-year Climbs to 1.23%.

U.S. Treasury yields rose on Wednesday morning, with the 10-year rate climbing to 1.23%.

The yield on the benchmark 10-year Treasury note added 2 basis points, rising to 1.236%. The yield on the 30-year Treasury bond rose 3 basis points to 1.9003%.

Gold futures rose and Treasury yields sunk at the beginning of the week, with the 10-year rate hitting a five-month low, amid concerns about the rapid spread of COVID-19 variants and rising inflation.

US Stock Market Futures Up Ahead of Cash Market Opening as Comeback Rally Continues

U.S. stock futures are higher early Wednesday as equities continue their rebound from a one-day rout to start the week. The stabilizing bond market is one reason for the recovery in the stock market.

The yield on the 10-year Treasury dropped to a new 5-month low on Monday, before stabilizing on Tuesday. The drop in rates is unnerving equity investors by signaling a possible slowing economy due to spreading COVID-19 variants or a possible Federal Reserve mistake.

Daily Forecast

Although gold futures appear listless, our experience tells us that this may be the calm before the storm as often we see a jump in volatility following this type of price action.

Some strategists see the stock market heading into a volatile period, in which there could be deeper pullbacks. Investors are juggling inflation concerns as well as new COVID cases are rebounding in the U.S. as the delta variant spreads. This could also be the source of volatility for gold.

Gold has shown almost no reaction to falling Treasury yields, which suggests prices should be higher. However, it’s the strong dollar that is capping gold’s gains. If conditions stay the same then gold is likely to fall sharply. I think gold is going to have a hard time rallying as long as investors see the U.S. Dollar as a safe-haven.